Nestle India - 2QCY12 Results Update - Motilal Oswal

- Overall sales grew just 12.7% v/s our estimate of 22%. Domestic sales grew 13.7%, but exports declined 1.1% despite sustained INR depreciation. EBITDA grew 24.7%, as margins expanded 210bp, despite ~140bp increase in other expenses and 60bp increase in staff cost.

- We estimate flat-to-negative volume growth in the domestic business, impacted by changes in the product portfolio and channel rationalization.

- Gross margin expanded 400bp YoY due to (1) higher prices, (2) improved channel mix, and (3) INR depreciation.

- The company booked INR220m as interest cost; total borrowing during the quarter was USD35m and total loan from Nestle SA stands at USD192m. INR depreciation led to an MTM loss of INR978m, of which INR167m was charged in the P&L and the rest was added to fixed assets.

- Nestle announced its first interim dividend of 2012 at INR18/share.

- We will review our estimates post 3QCY12, as we believe the company would no longer enjoy the low base in margins; also we expect the company to focus on volume growth. The stock trades at rich valuations of 36.1x CY12E and 30x CY13E EPS. Maintain Neutral.

Source : Equity Bulls

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