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Nestlé India
Sales momentum continues, but profit disappoints
2Q CY11 sales growth was in line at 20% yoy driven by
strong performance across businesses.
Higher input and staff expenses led to EBITDA margin
declining by 50bps yoy. EBITDA was up 17% yoy.
Rise in tax rate to 31% due to expiry of 100% tax
holiday in Pantnagar unit led to a lower 9% yoy growth
in adjusted net profit.
We reduce our CY12-13 EPS by 2-3% and revise our
price target to Rs4,280 (earlier Rs4,338). We retain IL
as current rich valuations, at one-year forward P/E of
38x, offers no upside in the near-term.
Maintains robust sales growth. Nestlé continues to
maintain >20% sales growth trajectory. It posted strong
domestic sales growth of 21% driven by healthy underlying
volumes. Export growth was lower than the company’s
expectation at 11% due to ban on exports of milk powder.
Overall, net sales grew 20% yoy to Rs17.6bn
Margins healthy, but softens slightly. Inflation in key
inputs like milk, coffee and oils/fat increased raw material
cost-to-sales by 40bps yoy to 49.5%. Apart from this, 23%
increase in staff costs and 20% increase in other
expenditure resulted in EBITDA margin declining
marginally by 50bps yoy to 19.8%. Operating profit was up
17% yoy to Rs3.5bn.
Higher taxes hurt profits. PBT growth at 15% yoy was
lower than EBITDA growth due to lower other income and
higher depreciation charges. However, adjusted net profit
grew by just 9% due to higher taxes. Effective tax rate
increased from 27% in 2Q CY10 to 31% in 2Q CY11 due to
expiry of 100% tax holiday in Pantnagar plant.
We cut our earnings marginally. We tweak our cost
assumptions and tax rates due to lower-than-expected
margins and higher tax rates. We cut our CY12/13 EPS
estimates by 3/2%.
Re-iterate IN-LINE. We continue to remain positive on
Nestle’s business prospects and expect it to post sales and
EPS CAGR of 19% and 23%, respectively, over CY10-13E.
However, at one-year forward P/E of 38x, we believe the
stock is fairly valued and offers no upside in the near-term.
It trades at a significant 47% premium to its six-year
median and 160% premium to Sensex (compared to 80%
historically). We recently downgraded the stock to IL owing
to expensive valuations – continue to maintain IL with a
revised price target of Rs4,280 based on forward P/E of
30x
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestlé India
Sales momentum continues, but profit disappoints
2Q CY11 sales growth was in line at 20% yoy driven by
strong performance across businesses.
Higher input and staff expenses led to EBITDA margin
declining by 50bps yoy. EBITDA was up 17% yoy.
Rise in tax rate to 31% due to expiry of 100% tax
holiday in Pantnagar unit led to a lower 9% yoy growth
in adjusted net profit.
We reduce our CY12-13 EPS by 2-3% and revise our
price target to Rs4,280 (earlier Rs4,338). We retain IL
as current rich valuations, at one-year forward P/E of
38x, offers no upside in the near-term.
Maintains robust sales growth. Nestlé continues to
maintain >20% sales growth trajectory. It posted strong
domestic sales growth of 21% driven by healthy underlying
volumes. Export growth was lower than the company’s
expectation at 11% due to ban on exports of milk powder.
Overall, net sales grew 20% yoy to Rs17.6bn
Margins healthy, but softens slightly. Inflation in key
inputs like milk, coffee and oils/fat increased raw material
cost-to-sales by 40bps yoy to 49.5%. Apart from this, 23%
increase in staff costs and 20% increase in other
expenditure resulted in EBITDA margin declining
marginally by 50bps yoy to 19.8%. Operating profit was up
17% yoy to Rs3.5bn.
Higher taxes hurt profits. PBT growth at 15% yoy was
lower than EBITDA growth due to lower other income and
higher depreciation charges. However, adjusted net profit
grew by just 9% due to higher taxes. Effective tax rate
increased from 27% in 2Q CY10 to 31% in 2Q CY11 due to
expiry of 100% tax holiday in Pantnagar plant.
We cut our earnings marginally. We tweak our cost
assumptions and tax rates due to lower-than-expected
margins and higher tax rates. We cut our CY12/13 EPS
estimates by 3/2%.
Re-iterate IN-LINE. We continue to remain positive on
Nestle’s business prospects and expect it to post sales and
EPS CAGR of 19% and 23%, respectively, over CY10-13E.
However, at one-year forward P/E of 38x, we believe the
stock is fairly valued and offers no upside in the near-term.
It trades at a significant 47% premium to its six-year
median and 160% premium to Sensex (compared to 80%
historically). We recently downgraded the stock to IL owing
to expensive valuations – continue to maintain IL with a
revised price target of Rs4,280 based on forward P/E of
30x
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