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Nestle’s Q4CY11 revenue and PAT were in line with our estimates. Key
positives were domestic sales growth of 16.7% (on high base of 26.6% in
Q4FY10; GSK reported flat sales in noodles and HUL reported muted
growth in soups), 23.2% rise in exports, aided by INR depreciation, was
adversely impacted by ban on milk powder exports. Calibrated price hike,
superior product mix and rationalization of low margin businesses helped
gross margin expand 218bps. Key negatives were higher staff costs (to
support business expansion) and other expenditure which limited EBITDA
margin rise to 138bps. Maintain ‘HOLD’ as the stock is fairly valued.
Revenue soars 17% YoY on strong exports and domestic sales
Nestle reported robust sales spurt of ~17% YoY to INR19.5bn led by strong domestic
sales growth of 16.7% to INR18.6bn. We expect volume growth to pick up due to
commissioning of new plants. PAT grew a robust 13.5% (on base of 42.3% in Q4FY10).
EBITDA up 25.1% YoY aided by gross margin expansion
The company’s gross margin expanded 218bps YoY to 54.6% of net sales led by calibrated
price hikes and softening of its key raw material (however, milk price still very high).
EBITDA grew a strong 25.1% (on high base of 44.5% in Q4FY10) to INR4.1bn and EBITDA
margin improved 138bps to 21.1%. Staff expenses jumped 41bps to 7.5% of net sales
primarily on account of business expansion and other expenditure rose 39bps. The YTD
cost of ECB including the impact of INR depreciation (USD136mn for expansion) was
43.1% on annualized basis.
Limited tax holiday dents profit
Tax rate surged significantly by 347bps to 33.2% as its Pantnagar plant, which had
enjoyed 100% tax exemption until recently, will enjoy tax holiday on only 30% of profit.
Outlook and valuations: Fairly valued; maintain ‘HOLD’
Nestle is the best play in packaged food category in India. We believe volume growth
will continue in coming quarters with increased focus on new product launches. Also,
reduced food inflation may further aid margins. At CMP, the stock is trading at 36.1x
CY12E and 29.9x CY13E, and appears fairly valued for the near term. Hence, we
maintain ‘HOLD/ Sector Performer’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestle’s Q4CY11 revenue and PAT were in line with our estimates. Key
positives were domestic sales growth of 16.7% (on high base of 26.6% in
Q4FY10; GSK reported flat sales in noodles and HUL reported muted
growth in soups), 23.2% rise in exports, aided by INR depreciation, was
adversely impacted by ban on milk powder exports. Calibrated price hike,
superior product mix and rationalization of low margin businesses helped
gross margin expand 218bps. Key negatives were higher staff costs (to
support business expansion) and other expenditure which limited EBITDA
margin rise to 138bps. Maintain ‘HOLD’ as the stock is fairly valued.
Revenue soars 17% YoY on strong exports and domestic sales
Nestle reported robust sales spurt of ~17% YoY to INR19.5bn led by strong domestic
sales growth of 16.7% to INR18.6bn. We expect volume growth to pick up due to
commissioning of new plants. PAT grew a robust 13.5% (on base of 42.3% in Q4FY10).
EBITDA up 25.1% YoY aided by gross margin expansion
The company’s gross margin expanded 218bps YoY to 54.6% of net sales led by calibrated
price hikes and softening of its key raw material (however, milk price still very high).
EBITDA grew a strong 25.1% (on high base of 44.5% in Q4FY10) to INR4.1bn and EBITDA
margin improved 138bps to 21.1%. Staff expenses jumped 41bps to 7.5% of net sales
primarily on account of business expansion and other expenditure rose 39bps. The YTD
cost of ECB including the impact of INR depreciation (USD136mn for expansion) was
43.1% on annualized basis.
Limited tax holiday dents profit
Tax rate surged significantly by 347bps to 33.2% as its Pantnagar plant, which had
enjoyed 100% tax exemption until recently, will enjoy tax holiday on only 30% of profit.
Outlook and valuations: Fairly valued; maintain ‘HOLD’
Nestle is the best play in packaged food category in India. We believe volume growth
will continue in coming quarters with increased focus on new product launches. Also,
reduced food inflation may further aid margins. At CMP, the stock is trading at 36.1x
CY12E and 29.9x CY13E, and appears fairly valued for the near term. Hence, we
maintain ‘HOLD/ Sector Performer’.
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