Nestle India Ltd (Q4 CY13)

India Infoline News Service | Mumbai |

Nestle registered muted 4.6% yoy growth in revenues at Rs22.5bn during Q4 CY13 - below our expectations of Rs23.9bn.

CMP Rs5,070, Target Rs5,393, Upside 6.4% 
  • Nestle registered muted 4.6% yoy growth in revenues at Rs22.5bn during Q4 CY13 - below our expectations of Rs23.9bn. Domestic sales recorded mere 3.7% yoy growth at Rs21.2bn due to intense competition in noodles and beverages category and SKU rationalization. Weakness in urban and discretionary demand further impacted revenue growth. Underlying volume growth remains lackluster (could be negative). Exports (contributing ~7% to total revenues) increased by 20.9% yoy to Rs1.3bn aided by healthy increase in exports to affiliates and positive impact of rupee depreciation.

  • Operating margins for the quarter contracted by ~220bps to 21.2% due to 180bps increase in raw material cost on account of sharp rise in milk and milk powder prices. Higher staff and overhead cost further impacted operating margins.

Cost Analysis
As a % of net sales Q4 CY13 Q4 CY12 bps yoy Q3 CY13 bps qoq
Material cost 46.6 44.8 179 45.0 159
Personnel cost 8.2 8.1 12 8.3 (5)
Other overheads 24.4 24.0 36 25.7 (134)
Total costs 79.2 77.0 226 79.0 20
Source: Company, India Infoline Research
  • Other income for the quarter more than doubled to Rs319mn from Rs126mn in Q4 CY12 due to higher average liquidities coupled with higher yields. Net profit degrew by 2.7% yoy at Rs2.7bn below our expectations of Rs3.1bn due to higher operating costs and higher tax outgo. Effective tax rate for the quarter was higher at 32.5% against 30.7% during Q4 CY12 mainly due to the change in income tax surcharge from 5% to 10% effective from April 01, 2013. Adjusted net profit after extraordinary income of Rs102mn registered mere 1% yoy increase at Rs2.8bn.

  • We have reduced our revenue and PAT estimates for FY14/15 to factor in slower revenue growth, input cost inflation and increased competitive pressure.

Changes in estimates
(Rs mn) CY14E CY15E
New Old Change (%) New Old Change (%)
Net sales 1,02,013 1,06,568 (4.3) 1,16,083 1,23,215 (5.8)
EBITDA 22,551 24,431 (7.7) 25,877 28,463 (9.1)
OPM (%) 22.1 22.9 (0.8) 22.3 23.1 (0.8)
PAT 12,699 14,078 (9.8) 14,858 16,474 (9.8)
EPS 131.7 146.0 (9.8) 154.1 170.9 (9.8)
Source: Company, India Infoline Research 
  • We believe Nestle is one of the best plays on the healthy growth potential in the Indian food-processing sector. However, a general economic slowdown, input cost inflation, SKU rationalization and intense competition in the market are likely to weigh on Nestle's performance. Weakness in urban and discretionary demand is expected to impact revenue growth for the next few quarters. We expect Nestle to witness 11.8%/11.6% CAGR in revenues/net profit respectively over CY12-15. At the current market price of Rs5,070, the stock is trading at 32.9x CY15E EPS of Rs154.1. We maintain Market Performer rating on the stock with a revised 9-month price target of Rs5,393 (earlier Rs5,767).

Results table
(Rs m) Q4 CY13 Q4 CY12 % yoy Q3 CY13 % qoq
Domestic FMCG sales 21,178 20,414 3.7 21,832 (3.0)
Exports 1,345 1,112 20.9 1,651 (18.6)
Total sales 22,523 21,527 4.6 23,483 (4.1)
Other operating income 107 85 25.8 117 (8.9)
Total income 22,630 21,611 4.7 23,600 (4.1)
Material cost (10,494) (9,645) 8.8 (10,568) (0.7)
Personnel cost (1,858) (1,750) 6.1 (1,949) (4.7)
Other overheads (5,496) (5,176) 6.2 (6,044) (9.1)
Operating profit 4,783 5,041 (5.1) 5,039 (5.1)
OPM (%) 21.2 23.4 (218) bps 21.5 (22) bps
Depreciation (856) (855) 0.1 (835) 2.6
Interest (101) (99) 2.0 (100) 1.5
Other income 319 126 152.4 231 38.3
PBT 4,145 4,213 (1.6) 4,335 (4.4)
Tax (1,347) (1,293) 4.2 (1,416) (4.9)
Effective tax rate (%) 32.5 30.7 - 32.7 -
Provision for contingencies (83) (131) (36.9) (106) (21.6)
Adjusted PAT 2,715 2,789 (2.7) 2,814 (3.5)
Adj. PAT margin (%) 12.1 13.0 (90) bps 12.0 7 bps
Extra ordinary items 102 - - 36 179.4
Reported PAT 2,817 2,789 1.0 2,850 (1.2)
Ann. EPS (Rs) 112.6 115.7 (2.7) 116.7 (3.5)
Source: Company, India Infoline Research
 

Financial Summary
Y/e 31 Dec (Rs m) CY12 CY13E CY14E CY15E
Revenues 83,023 90,619 1,02,013 1,16,083
yoy growth (%) 10.8 9.1 12.6 13.8
Operating profit 18,580 20,196 22,551 25,877
OPM (%) 22.4 22.3 22.1 22.3
Pre-exceptional PAT 10,679 11,033 12,699 14,858
Reported PAT 10,679 11,171 12,699 14,858
yoy growth (%) 11.1 4.6 13.7 17.0
EPS (Rs) 110.8 114.4 131.7 154.1
P/E (x) 45.8 44.3 38.5 32.9
Price/Book (x) 27.2 20.7 16.1 12.5
EV/EBITDA (x) 26.7 24.6 22.0 19.1
Debt/Equity (x) 0.6 0.5 0.4 0.3
RoE (%) 69.5 53.1 47.0 42.7
RoCE (%) 60.5 52.0 48.7 47.7
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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