Nestlé India - Q2CY20 First Cut - ICICI Securities

(CMP - Rs. 17099, MCap - Rs. 1,61,041 crore)

Nestlé India Q2CY20 numbers were tad below our estimates on revenues, margins & earnings front.

Q2CY20 Earnings Summary

- Revenue witnessed growth of 2.0% to Rs. 3050.5 (I-direct estimate : Rs. 3188.8) with domestic sales grew by 2.6% & exports sales witnessed a decline of 9.3%. The growth was impacted by manufacturing disruptions in most of the product category in April. We believe Milk & related products category started manufacturing earlier in April and all other categories were lost significant sales in April. On an average eight manufacturing facilities were working on 75% during the quarter

- The company witnessed strong growth in 'EVERYDAY dairy whitener', Nestle a+ Milk, Milkmaid, Nescafe Classic & Nestle Sunrise brands in milk & beverage categories. Further, the growth in noodles segment were very strong in May & June as the manufacturing facilities started ramping up production. However, the company lost sales in April due to limited supplies with the halt on manufacturing & disruption in distribution network

- Operating profit witnessed a growth of 7.2% and operating margins expanded by 127 bps. The expansion in margins were led by 141 bps improvement in gross margins with milk prices in deflationary trend. Further, the cost cutting measures & reduction in A&P led to the saving in overhead spends by 487 bps. Given reduction in corporate tax rate, net profit increased by 11.1% to Rs. 486.6 crore (I-direct estimate : Rs. 502.7 crore)

Though the food category has seen strong growth during the quarter led by the trend of increasing 'in-home' consumption, we believe the company was not able to supply noodles & coffee due to late start of manufacturing for these categories. However, manufacturing operations remains smooth for milk & related products (being part of essentials) during the entire quarter which would have resulted in strong growth in the category. Moreover, noodles witnessed a strong growth by end of May & June months with supply coming back to near normal. We believe the Nestlé's product portfolio would see strong growth in medium term with continued higher 'in-home' consumption (noodles, ketchup, coffee) & manufacturing & supply normalising completely.

We will be coming out with the detailed update soon.

Shares of NESTLE INDIA LTD. was last trading in BSE at Rs.17098.95 as compared to the previous close of Rs. 17343.9. The total number of shares traded during the day was 5573 in over 2274 trades.

The stock hit an intraday high of Rs. 17447.35 and intraday low of 17025. The net turnover during the day was Rs. 95975102.

Source : Equity Bulls

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