Nestle India - 2QCY2012 Result Update - Angel Broking

For 2QCY2012, Nestle India (Nestle) reported a 12.7% yoy growth in its top-line to Rs.1,987cr, which is below our estimates. The net profit grew by 15.0% yoy to Rs.246cr aided by 24.5% growth in EBITDA and higher other income.

Key highlights during the quarter: The top-line growth during the quarter was driven by higher realizations on domestic sales although volume growth was subdued. The domestic business posted a 13.7% yoy growth in net sales to Rs.1,868cr. However, exports registered a 1.1% yoy decline to Rs.118cr despite a robust 56% yoy increase in exports to third parties due to 24.5% yoy decline in exports to affiliates. The rupee's depreciation favourably impacted the total exports growth by 13.1%. The gross Margin for the quarter expanded by 403bp to 54.6% as higher realization and product portfolio/channel mix offset the increase in input costs.

Outlook and valuation: At the CMP, Nestle is trading at ~149% premium to the Sensex, significantly ahead of its five-year average historical premium of ~97%. 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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