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Nestle India
Dec Q surprises on margin
gains; Valuation remains rich
„Dec Q profit of Rs2bn, up 80% yoy; 14% above our est
A favorable base and strong sales growth led to a strong Dec Q performance.
Margin gains surprised on the upside as price hikes offset higher raw material
costs and overheads to some extent. We maintain our estimate of 22% EPS
CAGR over CY11-12E on strong sales growth and price hikes leading to a gain in
margins. We raise our PO to Rs2700 on rollover to 22xCY12E P/E, in line with the
sector average. However, the current valuation of 35xCY11E appears rich and we
believe risk to earnings from margin pressure remains. Retain Underperform.
Sales grow 23%; Volume growth remains strong
Nestle reported healthy domestic growth, in line with our estimates as strong midteens volume growth was sustained and price hikes picked up. Exports grew
8%yoy on a pick-up in demand for beverages. We maintain our sales growth
estimate of ~21% for CY11-12E as we expect strong consumer demand to
support volume growth despite strong price hikes by the company.
Margin pressure easing off, supported by mix/price gains
Nestle managed to offset rising costs for key inputs like milk (40% of RM cost),
oils and coffee as it gained 50bp on gross margins. With strong inflation in milk,
oils and coffee, we expect margin pressures for Nestle to persist. Also, overheads
remained high due to higher A&P spend to counter rising competition and support
volume growth in light of price hikes.
Expensive valuation not supported by earnings growth; U/P
Nestle, at 35XCY11E P/E, is the most expensive stock under our coverage at a
50% premium to the FMCG sector and 40% premium to its last 5-year average.
This looks rich to us, as earnings growth is trending down towards sector growth.
Our PO of Rs2700, based on 22xCY12E, is at 10% discount to the last 5-yr avg
and in line with the sector avg.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestle India
Dec Q surprises on margin
gains; Valuation remains rich
„Dec Q profit of Rs2bn, up 80% yoy; 14% above our est
A favorable base and strong sales growth led to a strong Dec Q performance.
Margin gains surprised on the upside as price hikes offset higher raw material
costs and overheads to some extent. We maintain our estimate of 22% EPS
CAGR over CY11-12E on strong sales growth and price hikes leading to a gain in
margins. We raise our PO to Rs2700 on rollover to 22xCY12E P/E, in line with the
sector average. However, the current valuation of 35xCY11E appears rich and we
believe risk to earnings from margin pressure remains. Retain Underperform.
Sales grow 23%; Volume growth remains strong
Nestle reported healthy domestic growth, in line with our estimates as strong midteens volume growth was sustained and price hikes picked up. Exports grew
8%yoy on a pick-up in demand for beverages. We maintain our sales growth
estimate of ~21% for CY11-12E as we expect strong consumer demand to
support volume growth despite strong price hikes by the company.
Margin pressure easing off, supported by mix/price gains
Nestle managed to offset rising costs for key inputs like milk (40% of RM cost),
oils and coffee as it gained 50bp on gross margins. With strong inflation in milk,
oils and coffee, we expect margin pressures for Nestle to persist. Also, overheads
remained high due to higher A&P spend to counter rising competition and support
volume growth in light of price hikes.
Expensive valuation not supported by earnings growth; U/P
Nestle, at 35XCY11E P/E, is the most expensive stock under our coverage at a
50% premium to the FMCG sector and 40% premium to its last 5-year average.
This looks rich to us, as earnings growth is trending down towards sector growth.
Our PO of Rs2700, based on 22xCY12E, is at 10% discount to the last 5-yr avg
and in line with the sector avg.
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