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UBS Investment Research
Nestle India Ltd.
Q 1 CY11 result review
Q1CY11 revenues +22%, ~10% volume growth
Nestle’s Q1CY11 revenues at Rs18.1bn grew +22%YoY, with ~10% underlying
volume growth. An improved product mix and ~10% price increases contributed to
the strong revenue growth. Nestle has reduced promotional volumes to offset
commodity inflation. EBITDA was Rs3.8bn (27% growth) and PAT was Rs2.62bn
(UBSe Rs2.3bn), 33% growth, due to lower than expected COGS and depreciation
(lower amortization expenses of management MIS).
Gross margins expand despite RM pressure
GM’s improved 100bps to 51.2% from Q1CY10. Milk, vegetable oil, coffee and
cocoa (~65% of raw material) were up ~20-25% yoy. We believe ~10-12% price
increases, cutting of promotional volumes, driving upgrades within categories and
indirect cost rationalization has enabled pass-through of cost increases.
Category expansion ahead – capex deployment
The new Maggi plant put up an investment of Rs3.6bn in Nanjangud, Karnataka
has started production. The total capex expansion of Rs25bn across three years
promises growth across the existing and new categories that Nestle plans to launch
in India. The Haryana and Punjab plants are doubling capacities of infant nutrition
and chocolate businesses, respectively.
Valuation: Maintain Neutral rating on valuations
We have a price target of Rs4,200 and a Neutral rating on the stock. We derive our
price target from a DCF-based methodology and explicitly forecast long-term
valuation drivers with UBS’s VCAM tool.
Nestle India Ltd.
Nestle is a 65%-owned subsidiary of Nestle SA, Switzerland. The company is
the market leader in its key product categories of infant nutrition, coffee,
noodles, and chocolate. The company's diversified product portfolio is sold
primarily in urban markets to middle- and upper-income households. The
company is increasing distribution reach into small cities, driving growth for the
company. In the domestic market, the company has been aggressively launching
new products to expand its consumer base. The company is diversifying its
export business to reduce dependence on Russia.
Statement of Risk
We believe the key risk to Nestle's earnings and valuation is the slowdown in
the consumer market, which, we believe could affect earnings and valuations in
the sector. In a high-raw-material-cost environment, sluggish sales could also
affect earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Nestle India Ltd.
Q 1 CY11 result review
Q1CY11 revenues +22%, ~10% volume growth
Nestle’s Q1CY11 revenues at Rs18.1bn grew +22%YoY, with ~10% underlying
volume growth. An improved product mix and ~10% price increases contributed to
the strong revenue growth. Nestle has reduced promotional volumes to offset
commodity inflation. EBITDA was Rs3.8bn (27% growth) and PAT was Rs2.62bn
(UBSe Rs2.3bn), 33% growth, due to lower than expected COGS and depreciation
(lower amortization expenses of management MIS).
Gross margins expand despite RM pressure
GM’s improved 100bps to 51.2% from Q1CY10. Milk, vegetable oil, coffee and
cocoa (~65% of raw material) were up ~20-25% yoy. We believe ~10-12% price
increases, cutting of promotional volumes, driving upgrades within categories and
indirect cost rationalization has enabled pass-through of cost increases.
Category expansion ahead – capex deployment
The new Maggi plant put up an investment of Rs3.6bn in Nanjangud, Karnataka
has started production. The total capex expansion of Rs25bn across three years
promises growth across the existing and new categories that Nestle plans to launch
in India. The Haryana and Punjab plants are doubling capacities of infant nutrition
and chocolate businesses, respectively.
Valuation: Maintain Neutral rating on valuations
We have a price target of Rs4,200 and a Neutral rating on the stock. We derive our
price target from a DCF-based methodology and explicitly forecast long-term
valuation drivers with UBS’s VCAM tool.
Nestle India Ltd.
Nestle is a 65%-owned subsidiary of Nestle SA, Switzerland. The company is
the market leader in its key product categories of infant nutrition, coffee,
noodles, and chocolate. The company's diversified product portfolio is sold
primarily in urban markets to middle- and upper-income households. The
company is increasing distribution reach into small cities, driving growth for the
company. In the domestic market, the company has been aggressively launching
new products to expand its consumer base. The company is diversifying its
export business to reduce dependence on Russia.
Statement of Risk
We believe the key risk to Nestle's earnings and valuation is the slowdown in
the consumer market, which, we believe could affect earnings and valuations in
the sector. In a high-raw-material-cost environment, sluggish sales could also
affect earnings.
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