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Nestle India (NI) registered net sales growth of 22%, in line with our expectations, and
EBITDA growth of 27% in 1Q11. The company could have had the benefit of certain
favourable raw material contracts (as management indicated in the last meeting), so we
would be cautious in assuming the current margins for rest of the year.
Sales growth was mainly driven by strong volumes in its domestic business and price
increases. Better cost management led to an improved EBITDA margin of 21.3% in 1Q11.
PAT grew 27% yoy to Rs2.5bn in 1Q11.
Capex plans are on track
Management has indicated that capex plans are on track. The Maggi plant in Nanjangud,
Karnataka started production in 1Q11. Management had announced a major capex
programme in 1Q11 to increase capacity across its manufacturing plants. We feel rising
capex will strengthen NI's competitive position. Additional capacity should boost volumes
across segments such as culinary products, chocolates and infant foods going forward.
Volatile commodity prices remain a concern
Unprecedented cost pressure and volatile commodity prices have been key concerns for NI.
Prices of raw materials such as coffee and palm oil rose very sharply in 1Q11. There has
since been a correction in the prices of most key raw materials from the recent highs in
March 2011. However, improved product/channel mix and reduced promotional expenses
helped the company offset the impact of rising costs on margins in Q1 2011.
Reiterate Hold
NI faces volatile raw material prices, coupled with the financial impact of higher capex on
near-term earnings. We expect FY11 growth to be subdued at 10%, but expect stronger
growth of 24% beyond. We set our DCF-based TP at Rs3,559.42. Reiterate Hold.
In-line sales growth in 1Q11
Net sales growth was in line with our expectation of 22%. EBITDA of Rs3.85bn is 13% higher
than our expectations. The company reported EBITDA margin of 21% in 1Q11 vs our
expectation of 19%.
Quarterly highlights
Net sales grew 22% yoy to Rs18.1bn vs our expectation of Rs17.9bn.
EBITDA grew 27% yoy to Rs3.85bn, 13% higher than our expectations. EBITDA margin
improved 74bp yoy and 155bp qoq to 21.3% due to an improved product/channel mix,
reduction in promotional expenses and potentially favourable raw material contracts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestle India (NI) registered net sales growth of 22%, in line with our expectations, and
EBITDA growth of 27% in 1Q11. The company could have had the benefit of certain
favourable raw material contracts (as management indicated in the last meeting), so we
would be cautious in assuming the current margins for rest of the year.
Sales growth was mainly driven by strong volumes in its domestic business and price
increases. Better cost management led to an improved EBITDA margin of 21.3% in 1Q11.
PAT grew 27% yoy to Rs2.5bn in 1Q11.
Capex plans are on track
Management has indicated that capex plans are on track. The Maggi plant in Nanjangud,
Karnataka started production in 1Q11. Management had announced a major capex
programme in 1Q11 to increase capacity across its manufacturing plants. We feel rising
capex will strengthen NI's competitive position. Additional capacity should boost volumes
across segments such as culinary products, chocolates and infant foods going forward.
Volatile commodity prices remain a concern
Unprecedented cost pressure and volatile commodity prices have been key concerns for NI.
Prices of raw materials such as coffee and palm oil rose very sharply in 1Q11. There has
since been a correction in the prices of most key raw materials from the recent highs in
March 2011. However, improved product/channel mix and reduced promotional expenses
helped the company offset the impact of rising costs on margins in Q1 2011.
Reiterate Hold
NI faces volatile raw material prices, coupled with the financial impact of higher capex on
near-term earnings. We expect FY11 growth to be subdued at 10%, but expect stronger
growth of 24% beyond. We set our DCF-based TP at Rs3,559.42. Reiterate Hold.
In-line sales growth in 1Q11
Net sales growth was in line with our expectation of 22%. EBITDA of Rs3.85bn is 13% higher
than our expectations. The company reported EBITDA margin of 21% in 1Q11 vs our
expectation of 19%.
Quarterly highlights
Net sales grew 22% yoy to Rs18.1bn vs our expectation of Rs17.9bn.
EBITDA grew 27% yoy to Rs3.85bn, 13% higher than our expectations. EBITDA margin
improved 74bp yoy and 155bp qoq to 21.3% due to an improved product/channel mix,
reduction in promotional expenses and potentially favourable raw material contracts.
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