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UBS Investment Research
Nestle India Ltd.
N on-operational items impact profit
Operationally in line with our expectations; Q2 2011 revenue up 20%,
Nestlé India’s (Nestle) reported Q2 2011 revenue of Rs17.6bn, up 20% YoY, with
8-9% underlying volume growth. An improved product mix and price increases
contributed to the strong domestic revenue growth of 21%. Exports grew 11%
YoY, but were impacted by a ban on milk powder exports. EBITDA was Rs3.45bn
(up 17% YoY) and PAT was Rs2.2bn (compared with the UBS estimate of
Rs2.4bn), up 9% YoY, lower than operational profit due to higher interest/taxes
and lower other income.
Non-operational items impact PAT
For non-operational items: 1) interest expenses were higher, at Rs5.8m, due to
Nestle’s external commercial borrowing (ECB) of US$50m from Nestle SA; 2)
other income was lower due to the maturity of treasury instruments in the base
quarter; and 3) higher taxes due to the end of the 100% tax holiday at Nestlé’s
Pantnagar factory.
Capacity expansions - bullish on Indian food consumption
Nestle's new Maggi plant at Nanjangud, Karnataka was commissioned in March
2011 with an investment of Rs3.6bn. The total capex expansion of Rs25bn over
2011-14E promises to add growth across the existing and new categories that
Nestle plans to launch in India. We believe these capacity expansions are a
reflection of Nestle’s bullish plans in packaged food in India.
Valuation—maintain Neutral rating
We have a price target of Rs4,750 and a Neutral rating on the stock. We derive our
price target from a DCF-based methodology and explicitly forecast long-term
valuation drivers with UBS’s VCAM tool.
Nestle India Ltd.
Nestle is a 65%-owned subsidiary of Nestle SA, Switzerland. The company is
the market leader in its key product categories of infant nutrition, coffee,
noodles, and chocolate. The company's diversified product portfolio is sold
primarily in urban markets to middle- and upper-income households. The
company is increasing distribution reach into small cities, driving growth for the
company. In the domestic market, the company has been aggressively launching
new products to expand its consumer base. The company is diversifying its
export business to reduce dependence on Russia.
Statement of Risk
We believe the key risk to Nestle's earnings and valuation is the slowdown in
the consumer market, which, we believe could affect earnings and valuations in
the sector. In a high-raw-material-cost environment, sluggish sales could also
affect earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Nestle India Ltd.
N on-operational items impact profit
Operationally in line with our expectations; Q2 2011 revenue up 20%,
Nestlé India’s (Nestle) reported Q2 2011 revenue of Rs17.6bn, up 20% YoY, with
8-9% underlying volume growth. An improved product mix and price increases
contributed to the strong domestic revenue growth of 21%. Exports grew 11%
YoY, but were impacted by a ban on milk powder exports. EBITDA was Rs3.45bn
(up 17% YoY) and PAT was Rs2.2bn (compared with the UBS estimate of
Rs2.4bn), up 9% YoY, lower than operational profit due to higher interest/taxes
and lower other income.
Non-operational items impact PAT
For non-operational items: 1) interest expenses were higher, at Rs5.8m, due to
Nestle’s external commercial borrowing (ECB) of US$50m from Nestle SA; 2)
other income was lower due to the maturity of treasury instruments in the base
quarter; and 3) higher taxes due to the end of the 100% tax holiday at Nestlé’s
Pantnagar factory.
Capacity expansions - bullish on Indian food consumption
Nestle's new Maggi plant at Nanjangud, Karnataka was commissioned in March
2011 with an investment of Rs3.6bn. The total capex expansion of Rs25bn over
2011-14E promises to add growth across the existing and new categories that
Nestle plans to launch in India. We believe these capacity expansions are a
reflection of Nestle’s bullish plans in packaged food in India.
Valuation—maintain Neutral rating
We have a price target of Rs4,750 and a Neutral rating on the stock. We derive our
price target from a DCF-based methodology and explicitly forecast long-term
valuation drivers with UBS’s VCAM tool.
Nestle India Ltd.
Nestle is a 65%-owned subsidiary of Nestle SA, Switzerland. The company is
the market leader in its key product categories of infant nutrition, coffee,
noodles, and chocolate. The company's diversified product portfolio is sold
primarily in urban markets to middle- and upper-income households. The
company is increasing distribution reach into small cities, driving growth for the
company. In the domestic market, the company has been aggressively launching
new products to expand its consumer base. The company is diversifying its
export business to reduce dependence on Russia.
Statement of Risk
We believe the key risk to Nestle's earnings and valuation is the slowdown in
the consumer market, which, we believe could affect earnings and valuations in
the sector. In a high-raw-material-cost environment, sluggish sales could also
affect earnings.
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