Nestle India - 1QCY2012 Result Update - Angel Broking

For 1QCY2012, Nestle India's (Nestle) top line grew by 13.1% yoy while bottom line grew by 7.8% yoy, about 4.4% below our estimates. Operating margin for the quarter increased by 104 bps due to higher realizations. Rupee depreciation favorably impacted export growth by 6.3%. We maintain our Neutral view on the stock.

Key highlights during the quarter: Top-line growth during the quarter was driven by higher realizations on domestic sales but volume growth was muted. The company's export sales growth stood at 3.3% yoy, whereas domestic sales growth stood at 13.7% yoy. Nestle's operating profit margin increased by 104 bps on account of cost rationalization. Earnings grew by modest ~7.8%,

Outlook and valuation: At the CMP, Nestle is trading at ~178% premium to the Sensex, significantly ahead of its five-year average historical premium of ~91%. We render caution on the company's high premium to the Sensex on account of 1) Modest Volume Growth and 2) competition in the high-growth noodles category from HUL (Knorr soupy noodles), GSKCHL (Horlicks Foodles) and ITC (Sunfeast Yipee). Hence, we continue to maintain our Neutral view on the stock.

Source : Equity Bulls

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