Cautious outlook; aggressive capex
Long-term prospects and positives priced in
We attended the Analyst Meet of Nestle India where management vigorously
defended its current strategy of balancing growth v/s margins and reiterated
that Nestle will not sacrifice margins for chasing volume growth.
Key takeaways
Management continues to maintain its cautious stance due to the weak
macroeconomic environment. It had been cautious for a long time, and now
it is “more cautious”.
Nestle will try to balance volumes and profitability and not chase volumes at
the cost of margins. Its volume growth in the past 4-5 quarters has been dismal.
Management emphasized on the Real Internal Growth (RIG i.e. growth in
sales at previous year’s prices) which captures the impact of volume as well
as price mix. RIG for all the categories is higher than reported volume growth
as shown in the chart below.
Nestle has doubled capacities in every category except Coffee and achieved
completion of capacities ahead of schedule.
It has also doubled its distribution reach to 4m outlets since CY09, and is now
focusing on deriving better throughput from the same. It will focus on
improving its presence in the north-east.
Procurement of quality raw material is a challenge in the management’s
view, and it is trying to build a model which allows it to procure the same for
its expanded capacities, in turn, serving as a competitive advantage. Nestlé’s
input cost basket is up 7% for 1HCY12.
Adjusted for discontinued SKUs and policy changes (excise duty hike), volume
growth is 3.9% v/s reported 1.1%. Similarly, top-line growth is 16.4% v/s
reported 14.2%. Of the reported 50bp EBIT margin improvement for 1HCY12,
40bp is due to one-offs and non-comparable base (increase in excise post
Budget 2012).
No comments:
Post a Comment