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Nestlé India Limited
Neutral
NEST.BO, NEST IN
Q4CY10 - Strong performance; gross margin
expansion a key positive
• Robust earnings performance. Nestle India reported net sales, EBITDA
and adjusted PAT of Rs16.7bn (+24% y/y), Rs3.3bn (+66% y/y) and
Rs2.2bn (+66% y/y) for Q4CY10. While revenue growth was inline with
our estimates, EBITDA and PAT came in 5% ahead of our expectations.
• Strong domestic sales growth at 27% y/y supported by healthy volume
growth and price increases (more towards 2HCY10 in our view). Export
sales registered 17% y/y decline, which could possibly be due to diversion
of capacity to domestic demand as was the case in Q3CY10.
• Gross margin expansion of 60bp y/y was a key positive. After four
quarters of gross margin decline (on account of stiff commodity inflation),
Nestle posted 60bp increase in gross margins supported by aggressive price
hikes (in 2HCY10) and better product mix. EBITDA margins expanded
sharply from 14.7% in Q4CY09 to 19.7% in Q4CY10. However these are
not strictly comparable as Q4CY09 results were impacted by higher
employee costs due to one time actuarial losses. While raw material
inflation remains a significant challenge, we believe price increases and
better SG&A leverage will help mitigate cost pressures going forward.
• Stepping up capex investments. Nestle India is looking to invest
considerably in brownfield and greenfield expansion over the next 2-3 years.
Robust demand trends for its product portfolio and current high capacity
utilization rates for existing plants are driving this aggressive expansion at
their end. In order to fund these investments, the company’s board has
proposed an increase in borrowing limits upto Rs25bn (US$550mn) and
has in principle received RBI approval for availing External Commercial
Borrowings of upto US$450mn from the foreign equity holders. Also
dividend payout came down from 71% in CY09 to 57% in CY10 with DPS
remaining flat y/y at Rs48.5/share.
• We remain positive on the company's growth outlook and believe it is
amongst the best plays on fast-growing high potential processed foods
segment in India. We estimate 22% sales and EPS CAGR over CY10-12E.
Stock currently trades at 33x CY11E and 27x CY12E P/E. Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestlé India Limited
Neutral
NEST.BO, NEST IN
Q4CY10 - Strong performance; gross margin
expansion a key positive
• Robust earnings performance. Nestle India reported net sales, EBITDA
and adjusted PAT of Rs16.7bn (+24% y/y), Rs3.3bn (+66% y/y) and
Rs2.2bn (+66% y/y) for Q4CY10. While revenue growth was inline with
our estimates, EBITDA and PAT came in 5% ahead of our expectations.
• Strong domestic sales growth at 27% y/y supported by healthy volume
growth and price increases (more towards 2HCY10 in our view). Export
sales registered 17% y/y decline, which could possibly be due to diversion
of capacity to domestic demand as was the case in Q3CY10.
• Gross margin expansion of 60bp y/y was a key positive. After four
quarters of gross margin decline (on account of stiff commodity inflation),
Nestle posted 60bp increase in gross margins supported by aggressive price
hikes (in 2HCY10) and better product mix. EBITDA margins expanded
sharply from 14.7% in Q4CY09 to 19.7% in Q4CY10. However these are
not strictly comparable as Q4CY09 results were impacted by higher
employee costs due to one time actuarial losses. While raw material
inflation remains a significant challenge, we believe price increases and
better SG&A leverage will help mitigate cost pressures going forward.
• Stepping up capex investments. Nestle India is looking to invest
considerably in brownfield and greenfield expansion over the next 2-3 years.
Robust demand trends for its product portfolio and current high capacity
utilization rates for existing plants are driving this aggressive expansion at
their end. In order to fund these investments, the company’s board has
proposed an increase in borrowing limits upto Rs25bn (US$550mn) and
has in principle received RBI approval for availing External Commercial
Borrowings of upto US$450mn from the foreign equity holders. Also
dividend payout came down from 71% in CY09 to 57% in CY10 with DPS
remaining flat y/y at Rs48.5/share.
• We remain positive on the company's growth outlook and believe it is
amongst the best plays on fast-growing high potential processed foods
segment in India. We estimate 22% sales and EPS CAGR over CY10-12E.
Stock currently trades at 33x CY11E and 27x CY12E P/E. Neutral.
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