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Nestlé India Limited Neutral
NEST.BO, NEST IN
Q2CY11: Inline revenue growth but RM inflation
weighs on margins
Q2CY11 review. Nestle India reported Net Sales, EBITDA and adjusted
PAT growth of 20%, 17% and 10% respectively. While revenue growth
was broadly in line with our expectations, EBITDA was ~5% below our
estimates on account of weak gross margins. Lower other income and
higher depreciation led to PBT growth of 15% and higher tax payout
further suppressed earnings growth to 10%.
Healthy domestic sales growth of 21% y/y supported by good volume
growth and price increases. Exports grew 11% y/y. We expect healthy
revenue growth to sustain aided by new capacity commissioning over
next 1-2 years and price hikes being undertaken by the company. Further
company’s focus to augment its premium product portfolio will further
support topline growth.
EBITDA margins decline 50bp y/y on account of 40bp y/y reduction
in gross margins and higher staff costs (+20bp y/y, +23% y/y).
Management noted that inflation in key commodities like milk solids,
green coffee and vegetable oils weighed on gross margins despite price
hikes and better product/channel mix during the quarter. In our view,
while RM inflation and volatility remains a key challenge, we believe
price hikes, favorable mix and better SG&A leverage should support
margins in coming quarters.
Debt increases to US$60mn. During Q2CY11, company took
US$50mn from the parent as debt for capacity expansions. YTD cost of
this borrowing (not hedged) including interest and exchange differences
is 4.9% on an annualised basis.
Our view. Our earnings estimates are largely unchanged. We roll forward
our target price to June’12 and set it at Rs3960. Nestle India remains
amongst the best plays on Indian packaged foods category with diversified
product base and dominant shares in most categories. While we are
optimistic about the company’s growth potential, we see current valuations
at 34x CY12E P/E pricing in much of the positives. Retain Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestlé India Limited Neutral
NEST.BO, NEST IN
Q2CY11: Inline revenue growth but RM inflation
weighs on margins
Q2CY11 review. Nestle India reported Net Sales, EBITDA and adjusted
PAT growth of 20%, 17% and 10% respectively. While revenue growth
was broadly in line with our expectations, EBITDA was ~5% below our
estimates on account of weak gross margins. Lower other income and
higher depreciation led to PBT growth of 15% and higher tax payout
further suppressed earnings growth to 10%.
Healthy domestic sales growth of 21% y/y supported by good volume
growth and price increases. Exports grew 11% y/y. We expect healthy
revenue growth to sustain aided by new capacity commissioning over
next 1-2 years and price hikes being undertaken by the company. Further
company’s focus to augment its premium product portfolio will further
support topline growth.
EBITDA margins decline 50bp y/y on account of 40bp y/y reduction
in gross margins and higher staff costs (+20bp y/y, +23% y/y).
Management noted that inflation in key commodities like milk solids,
green coffee and vegetable oils weighed on gross margins despite price
hikes and better product/channel mix during the quarter. In our view,
while RM inflation and volatility remains a key challenge, we believe
price hikes, favorable mix and better SG&A leverage should support
margins in coming quarters.
Debt increases to US$60mn. During Q2CY11, company took
US$50mn from the parent as debt for capacity expansions. YTD cost of
this borrowing (not hedged) including interest and exchange differences
is 4.9% on an annualised basis.
Our view. Our earnings estimates are largely unchanged. We roll forward
our target price to June’12 and set it at Rs3960. Nestle India remains
amongst the best plays on Indian packaged foods category with diversified
product base and dominant shares in most categories. While we are
optimistic about the company’s growth potential, we see current valuations
at 34x CY12E P/E pricing in much of the positives. Retain Neutral
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