Nestle India - Best Play On Urban Recovery; Result Update Q3CY14 :: Edelweiss PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

Nestle India’s (Nestle) Q3CY14 sales and PAT came bang in line with our expectation. Nestle reported steady domestic sales growth of 9.9% YoY (9.7% YoY in Q2CY14), signaling results of revival efforts made through innovation, step-up in ads and expansion in distribution network. Flattish EBITDA margin, despite the 114bps YoY dip in gross margins (versus 230bps YoY fall in Q2CY14), indicates better cost management and price hikes. The company’s existing portfolio remains well-placed to gain from the likely urban recovery. In our view, ITC can potentially be a formidable competitor in coffee due to its sound track record of new launches in foods, strong back-end linkages, ability to fund aggressive advertising and wide-spread distribution.

Packaged foods benefiting from urban recovery

Nestle remains a good play on urban recovery as it has made a strong come-back in domestic sales logging 9.9% and 9.7% YoY growth in Q3CY14 and Q2CY14 respectively, from sub-4% levels in the previous two quarters. Peer Hindustan Unilever too reported its fourth consecutive quarter of double-digit growth at 13.4% YoY in Q3FY15, highlighting early benefits of urban recovery. The company’s exports however, remained muted and fell 3.9% YoY hit by lower coffee exports. Gradual improvement in Nestle’s performance over the past two quarters has coincided with the new Chairman taking charge. Under his leadership, innovations have stepped up with interesting launches including Nestle Oats. However, in our view, Nestle needs to further accelerate new launches.

Management commentary: Key takeaways

Nestle has been focusing on various efficiency and cost containment initiatives, which resulted in flattish EBITDA margin YoY. Nestle continues to eliminate lower-margin SKUs. Products that did well in Q3CY14 include Maggi Oats Noodles, Maggi Vegetable Atta Noodles, Maggi Masala-ae-Magic, Kitkat, Nescafe, Milkmaid and Everyday.

LINK

https://www.edelweiss.in/research/Nestle-India--Best-Play-On-Urban-Recovery;-Result-Update-Q3CY14/27371.html