Nestle India (Q1 CY14)

India Infoline News Service | Mumbai |

Nestle registered muted ~3% yoy growth in revenues at Rs23.1bn during Q1 CY14 – marginally below our expectations of Rs23.6bn

        CMP Rs4,757, Target 4,853 Upside 2.0%

  • Nestle registered muted ~3% yoy growth in revenues at Rs23.1bn during Q1 CY14 – marginally below our expectations of Rs23.6bn
  • Domestic sales recorded mere 3.4% yoy growth at Rs21.7bn due to intense competition in noodles and beverages category and SKU rationalization. Exports degrew by 4.4% yoy to Rs1.5bn
  • Operating margins contracted by ~270bps to 21.3% mainly due to 110bps increase in raw material cost on account of sharp rise in milk and milk powder prices
  • Net profit declined by 7.1% yoy at Rs2.6bn below our expectations of Rs3.2bn due to slower revenue growth and higher operating costs
  • We expect Nestle to witness 11%/12% CAGR in revenues/net profit respectively over CY13-15. Maintain Market Performer with a revised 9-month price target of Rs4,853 (earlier Rs5,393)

Result table
(Rs m) Q1 CY14 Q1 CY13 % yoy Q4 CY13 % qoq
Domestic FMCG sales 21,673 20,953 3.4 21,178 2.3
Exports 1,462 1,528 (4.4) 1,345 8.7
Total sales 23,135 22,481 2.9 22,523 2.7
Other operating income 81 73 10.7 107 (24.6)
Total income 23,215 22,554 2.9 22,630 2.6
Material cost (10,707) (10,158) 5.4 (10,494) 2.0
Personnel cost (1,840) (1,710) 7.6 (1,858) (1.0)
Other overheads (5,732) (5,287) 8.4 (5,496) 4.3
Operating profit 4,937 5,399 (8.6) 4,783 3.2
OPM (%) 21.3 24.0 (268) bps 21.2 10 bps
Depreciation (839) (821) 2.2 (856) (2.0)
Interest (103) (79) 29.4 (101) 1.5
Other income 309 127 143.0 319 (3.0)
PBT 4,304 4,626 (6.9) 4,145 3.8
Tax (1,374) (1,512) (9.1) (1,347) 2.0
Effective tax rate (%) 31.9 32.7 - 32.5 -
Provision for contingencies (339) (323) 4.8 (83) 309.6
Reported PAT 2,592 2,791 (7.1) 2,715 (4.5)
PAT margin (%) 11.2 12.4 (121) bps 12.1 (85) bps
Ann. EPS (Rs) 107.5 115.8 (7.1) 112.6 (4.5)
Source: Company, India Infoline Research

Muted domestic sales growth restricts revenue growth at ~3%
Nestle registered muted ~3% yoy growth in revenues at Rs23.1bn during Q1 CY14 – marginally below our expectations of Rs23.6bn. Domestic sales recorded mere 3.4% yoy growth at Rs21.7bn 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) declined by 4.4% yoy to Rs1.5bn after witnessing six quarters of healthy growth.

Sharp rise in input cost pull down operating margins by 270bps
Operating margins for the quarter contracted by ~270bps to 21.3% due to 110bps increase in raw material cost on account of sharp rise in milk and milk powder prices. Higher overhead and staff cost further impacted operating margins.

Cost Analysis
As a % of net sales Q1 CY14 Q1 CY13 bps yoy Q4 CY13 bps qoq
Material cost 46.3 45.2 110 46.6 (31)
Personnel cost 8.0 7.6 35 8.2 (30)
Other overheads 24.8 23.5 126 24.4 38
Total costs 79.0 76.3 270 79.2 (23)
Source: Company, India Infoline Research

Net profit declines by ~7% yoy due to slower revenue growth and higher operating costs
Other income for the quarter more than doubled to Rs309mn from Rs127mn in Q1 CY13 due to higher average liquidities coupled with higher yields. Net profit degrew by 7.1% yoy at Rs2.6bn below our expectations of Rs3.2bn due to slower revenue growth and higher operating costs.

Changes in estimates
We have reduced our revenue and PAT estimates for CY14/15 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 99,748 1,02,013 (2.2) 1,11,665 1,16,083 (3.8)
EBITDA 22,155 22,551 (1.8) 24,815 25,877 (4.1)
OPM (%) 22.2 22.1 0.1 22.2 22.3 (0.1)
PAT 12,268 12,699 (3.4) 13,967 14,858 (6.0)
EPS 127.2 131.7 (3.4) 144.9 154.1 (6.0)
Source: Company, India Infoline Research

To witness 11%/12% revenue/net profit CAGR over CY13-15, maintain Market Performer
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’
BSE 7,878.00 [43.60] ([0.55]%)
NSE 7,872.65 [48.40] ([0.61]%)

***Note: This is a NSE Chart

 

Advertisements

  • Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
  • Now Save Rs.3150 on your Demat Account ...Click here
  • Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
  • Get the most detailed result analysis on the web - Real Fast!
  • Actionable & Award-Winning Research on 500 Listed Indian Companies.