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Nestle India fares well

Nestle India fares well
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First Published: Wed, Apr 30 2008. 11 18 PM IST
Updated: Wed, Apr 30 2008. 11 18 PM IST
Results from the fast mo-ving consumer goods, or FMCG, sector have been generally good, justifying the market’s new-found fondness for it. Nestle India Ltd’s fourth quarter results, with earnings before interest and tax, excluding other income, which grew 40% from a year ago, show it has been able to ward off the impact of higher milk, wheat and coffee prices.
Not only that, it has also managed to raise its earni-ngs before interest, taxes, depreciation and amortization, or Ebitda, margins to 22.8% from 20.9% a year ago, which the managem-ent attributes to economies of scale and an improved sales channel mix. It’s no surprise that the stock jumped 9% on Wednesday.
Apart from margins, domestic revenue growth, too, has been a strong 29%, although export growth has been flat, because of lower beverage exports and a rising rupee. High commodity prices pose a challenge to Nestle and, together with increased advertising expenditure to support new launches, maintaining margins is not going to be easy.
However, analysts say Nestle also has pricing power, with its products able to tap into the change in lifestyles and consumer tastes. Analyst Anand Shah of Angel Broking Ltd points out that Nestle “benefits from its premium positioning as reflected in its high Ebitda margins at 20%, which are superior compared with most of its FMCG peers owing to a dominant market share in its key categories and high-end product offerings.”
A lower tax rate due to higher capacity utilization at the firm’s Pantnagar factory in Uttarakhand will also boost profits. But, with earnings forecast at Rs54.30 per share for calender year 2008, the stock trades at 32 times the company’s estimated earnings, which is by no means cheap.
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First Published: Wed, Apr 30 2008. 11 18 PM IST