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Nestle - (NEST IN, INR 3,550, Hold)
n Robust performance; sales in line with estimate
Nestle’s Q4CY10 revenues increased 23.6% Y-o-Y to INR 16.71 bn (in line with our
estimate of INR 16.40 bn). While domestic sales surged 26.6% Y-o-Y, export sales were
negatively impacted by diversion of capacity to domestic. PAT increased 42.3% Y-o-Y to
INR 2.03 bn (ahead of our estimate of INR 1.89 bn). However, net profit are not exactly
comparable as last year results were adversely impacted by higher employee cost due to
one-off actuarial losses.
n EBITDA swells, margins expand in spite of rising RM inflation
The company’s EBITDA rose 44.5% Y-o-Y to ~INR 3.3 bn against ~INR 2.3 bn in
Q4CY09. COGS declined 63bps to 47.6% of sales, employee cost dipped 90bps Y-o-Y and
other expenses declined 132bps Y-o-Y. Hence, EBIDTA margins jumped 286bps Y-o-Y to
19.7% in Q4CY10. In an extremely adverse environment that we have seen in the past
quarter, margin expansion speaks volume of the company’s efficiency.
n Competitive intensity increasing
GSK Consumer, ITC, and Hindustan Unilever (HUL) have entered the fast growing
noodles category. Hence, Nestle will have to increase A&P spend to maintain market
share, which will exert pressure on margins in coming quarters in the noodles segment.
n Outlook and valuations: Fairly valued; maintain ‘HOLD’
The company has achieved buoyant sales growth in spite of rising food inflation and we
believe this momentum will continue in the coming quarters with increased focus on new
product launches. Foreign promoters increasing stake in the Indian subsidiary reinforces
their confidence in and focus on the same. We are enthused by Nestle’s plan for higher
capex cycle to meet the growing demand of its products and launch new products, which
is likely to benefit it in the long run. However, we believe the stock is fairly valued over
the near term and maintain ‘HOLD’ recommendation. On relative return basis we rate it
‘Sector Underperformer’.
n History:
ICP was established in 2001 as a limited company, providing world-class home care,
personal care and cosmetic products. In 2002, the company initially launched a
successful vegetable and fruit cleansing liquid Vegy. Shortly thereafter, ICP introduced
home-care range, OCleen, which met with rapid success in the market. However, the
breakthrough brand for the company has been ICP's male-oriented personal care brand,
X-Men, which quickly became a market leader in the men's personal care segment just
one year after the initial launch in 2004. The recent addition to its portfolio is the sauces
and condiments segment. Driving on the synergy of both product expertise and
distribution channels, ICP recently introduced premium cosmetics and skincare, tapping
the high-end segment and gaining rapid success. In October 2006, ICP was converted
into joint stock form, with the Mekong Enterprise Fund II as a strategic investor.
Subsequently, in June 2008, another equity investor invested US$9.6 million into the ICP
group and acquired an approximately 21% stake. The two investments have supported
ICP in maintaining its market leadership while pursuing long-term growth plans. In June
2009, ICP acquired 67% share of Thuan Phat Foodstuff Joint Stock Company, a sauce
and condiments manufacturer and subsequently increased its stake to 86% as of
December 2010. ICP's success can be attributed to the company’s unwavering
commitment to meeting international standards of product quality, substantial
investment in brand building and the development of a strong management team. ICP's
success also reflects the company’s continuous pursuit for sustainable growth. Mekong
Enterprise Fund II made an investment in ICP in November 2006.
n Innovative Marketing:
Aside from meeting the highest quality standards for its products, ICP has developed a
strong core competence in brand developm ent and management, and is effective at
integrating outside expertise when necessary. From consumer research, product naming,
creative development, to management of media campaigns, ICP frequently utilizes
outside expertise in order to incorporate international best practices. Consequently,
brands such as X-Men and Dr. Men have established themselves as leading brands in
their respective market segments.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestle - (NEST IN, INR 3,550, Hold)
n Robust performance; sales in line with estimate
Nestle’s Q4CY10 revenues increased 23.6% Y-o-Y to INR 16.71 bn (in line with our
estimate of INR 16.40 bn). While domestic sales surged 26.6% Y-o-Y, export sales were
negatively impacted by diversion of capacity to domestic. PAT increased 42.3% Y-o-Y to
INR 2.03 bn (ahead of our estimate of INR 1.89 bn). However, net profit are not exactly
comparable as last year results were adversely impacted by higher employee cost due to
one-off actuarial losses.
n EBITDA swells, margins expand in spite of rising RM inflation
The company’s EBITDA rose 44.5% Y-o-Y to ~INR 3.3 bn against ~INR 2.3 bn in
Q4CY09. COGS declined 63bps to 47.6% of sales, employee cost dipped 90bps Y-o-Y and
other expenses declined 132bps Y-o-Y. Hence, EBIDTA margins jumped 286bps Y-o-Y to
19.7% in Q4CY10. In an extremely adverse environment that we have seen in the past
quarter, margin expansion speaks volume of the company’s efficiency.
n Competitive intensity increasing
GSK Consumer, ITC, and Hindustan Unilever (HUL) have entered the fast growing
noodles category. Hence, Nestle will have to increase A&P spend to maintain market
share, which will exert pressure on margins in coming quarters in the noodles segment.
n Outlook and valuations: Fairly valued; maintain ‘HOLD’
The company has achieved buoyant sales growth in spite of rising food inflation and we
believe this momentum will continue in the coming quarters with increased focus on new
product launches. Foreign promoters increasing stake in the Indian subsidiary reinforces
their confidence in and focus on the same. We are enthused by Nestle’s plan for higher
capex cycle to meet the growing demand of its products and launch new products, which
is likely to benefit it in the long run. However, we believe the stock is fairly valued over
the near term and maintain ‘HOLD’ recommendation. On relative return basis we rate it
‘Sector Underperformer’.
n History:
ICP was established in 2001 as a limited company, providing world-class home care,
personal care and cosmetic products. In 2002, the company initially launched a
successful vegetable and fruit cleansing liquid Vegy. Shortly thereafter, ICP introduced
home-care range, OCleen, which met with rapid success in the market. However, the
breakthrough brand for the company has been ICP's male-oriented personal care brand,
X-Men, which quickly became a market leader in the men's personal care segment just
one year after the initial launch in 2004. The recent addition to its portfolio is the sauces
and condiments segment. Driving on the synergy of both product expertise and
distribution channels, ICP recently introduced premium cosmetics and skincare, tapping
the high-end segment and gaining rapid success. In October 2006, ICP was converted
into joint stock form, with the Mekong Enterprise Fund II as a strategic investor.
Subsequently, in June 2008, another equity investor invested US$9.6 million into the ICP
group and acquired an approximately 21% stake. The two investments have supported
ICP in maintaining its market leadership while pursuing long-term growth plans. In June
2009, ICP acquired 67% share of Thuan Phat Foodstuff Joint Stock Company, a sauce
and condiments manufacturer and subsequently increased its stake to 86% as of
December 2010. ICP's success can be attributed to the company’s unwavering
commitment to meeting international standards of product quality, substantial
investment in brand building and the development of a strong management team. ICP's
success also reflects the company’s continuous pursuit for sustainable growth. Mekong
Enterprise Fund II made an investment in ICP in November 2006.
n Innovative Marketing:
Aside from meeting the highest quality standards for its products, ICP has developed a
strong core competence in brand developm ent and management, and is effective at
integrating outside expertise when necessary. From consumer research, product naming,
creative development, to management of media campaigns, ICP frequently utilizes
outside expertise in order to incorporate international best practices. Consequently,
brands such as X-Men and Dr. Men have established themselves as leading brands in
their respective market segments.
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