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Nestle India’s net sales up, but margins down

Nestle India’s net sales up, but margins down
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First Published: Wed, Feb 24 2010. 09 47 PM IST

Updated: Wed, Feb 24 2010. 09 47 PM IST
Food maker Nestle India Ltd’s net sales for the December quarter increased by 24% year-on-year (y-o-y), which was above our estimates led by strong domestic sales growth of 25.3% y-o-y. Exports sales grew by 8.5% y-o-y. The earnings before interest, tax, depreciation and amortization (Ebitda) for the quarter showed a fall of 5% y-o-y with operating margins declining by 445 basis points (bps) y-o-y.
The decline in operating margins was mainly on account of one-off actuarial losses arising from the revision of underlying assumptions for retirement benefits and higher brand building costs. Adjusting for the one-offs, we expect the margins will be broadly in line with estimates.
Also See Growth Path (Graphics)
Net sales was above our estimates and increased by 24.0% y-o-y to Rs1,351.8 crore, led by a 25.3% y-o-y growth in domestic sales to Rs1,261.2 crore. Domestic sales have been favourably affected on account of weather conditions and a lower base. Export sales increased by 8.5% y-o-y to Rs90.5 crore.
The surge in milk solids and sugar prices, which remain at record high levels, continue to pose a threat to the gross margins of the company. Ebitda for the quarter fell 5% y-o-y to Rs196.1 crore with operating margins declining by 445 bps y-o-y to 14.5%.
The decline in operating margins was mainly on account of one-off actuarial losses arising from the revision of underlying assumptions for retirement benefits and higher brand building costs. Adjusting for the one-offs, we expect the margins will be broadly in line with estimates.
Adjusted profit after tax (PAT) for the quarter was flat on a y-o-y basis at Rs131.3 crore. The PAT growth was affected on account of lower operating margins. The tax rate for the quarter was down 600 bps y-o-y to 25.6%, which arrested the decline in PAT for the quarter. The reported PAT was at Rs112.9 crore.
Nestle India is currently trading at a price-earnings multiple of 28.4 and 23.9 its estimated 2010 and 2011 earnings, respectively.
We have revised our revenue estimates by 3.6% and 3.7% and earnings estimates by 2.2% and 2.4% for 2010 and 2011 on account of the above estimated domestic sales growth for the company. Consequent to our earnings upgrade, we revise our price target on the stock to Rs2,625 (previous Rs2,454) valuing it at 27 times its one year forward earnings, maintaining our hold rating on the stock.
Graphics by Yogesh Kumar/Mint
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First Published: Wed, Feb 24 2010. 09 47 PM IST
More Topics: Nestle India | Sales | Exports | Ebitda | Domestic |