Nestle India - 4QCY2012 Result Update - Angel Broking

For 4QCY2012, Nestle India (Nestle) reported a healthy 20.8% yoy growth in its net profit to Rs. 279cr, aided by a 191bp yoy expansion in the OPM. However, subdued performance on the top-line front with continued weakness in volumes (estimated to be flat/low single digit during the quarter) remains a cause of concern.

Key highlights during the quarter: Domestic sales grew at an unimpressive 9.6% yoy, with growth arising largely due to better realization and superior product mix. However, exports rebounded during the quarter with a 20.6% yoy growth aided by 47.2% yoy increase in sales to third parties. Gross margins improved by 93bp yoy despite increase in prices of raw materials like milk, sugar etc due to better realization and superior product mix. The OPM expanded by 191bp yoy, on account of expansion in gross margin and a marginal yoy reduction in other expenses. Thus, operating profit rose by 20.1% yoy. During the quarter, the company's depreciation cost was higher by 87.3% yoy on account of the capacity addition undertaken by the company. The company's interest costs too rose on account of loans taken by it from promoter group Nestle SA for capacity expansion.

Outlook and valuation: We expect Nestle to post a top-line and bottom-line CAGR of 14% and 12.4% over FY2012-14. At the current market price, Nestle is trading at rich valuations of 35.4x CY2013E EPS. Hence, we continue to maintain our Neutral view on the stock.

Source : Equity Bulls

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