Nestle: Margins expand 210 bps due to price increases
- Overall sales grew just 12.7% v/s an 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.
- Motilal Oswal estimates 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) Rs depreciation.
- The company booked Rs220m as interest cost; total borrowing during the quarter was $35m and total loan from Nestle SA stands at $192m. INR depreciation led to an MTM loss of Rs978m, of which Rs167m was charged in the P&L and the rest was added to fixed assets.
- Nestle announced its first interim dividend of 2012 at Rs18/share.
Outlook: Motilal Oswal will review their estimates post 3QCY12, as they believe the company would no longer enjoy the low base in margins; also they expect the company to focus on volume growth. The stock trades at rich valuations of 36.1x CY12E and 30x CY13E EPS. Maintain Neutral.
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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