Do Nestlé India Ltd’s September quarter results indicate that things are back to normal after the Maggi noodles recall incident?
The September quarter should be seen as “normal course of business" for at least the ex-Maggi portfolio, say analysts from Kotak Institutional Equities Research. Maggi issues make a year-on-year comparison rather challenging to evaluate the company’s performance. Assuming Rs500 crore worth of Maggi sales in September 2016 and Rs650 crore in the September 2014 quarter, the ex-Maggi domestic portfolio seems to have declined 3% versus the September 2014 quarter, Kotak analysts said in a post-results report on 28 October. The brokerage firm believes comparing numbers two years back is perhaps more apt given Maggi’s problems last year.
“One can change the assumptions on Maggi sales and arrive at a conclusion that ex-Maggi sales have done better than what our math suggests; however, that would mean that Maggi revival pace is slower," says Kotak. “Either way, it is not a pretty picture."
Since the Maggi event, the September 2015 quarter was the worst for Nestlé India. Its net domestic sales fell to Rs1,588 crore. On that base, net domestic sales grew 38% from a year earlier to Rs2,190 crore for the September 2016 quarter. Total operating revenue rose 35.6% to Rs2,363 crore. On a sequential basis, domestic sales increased 5% in the September quarter. But it’s worth noting that domestic sales had declined 2% during the June quarter compared to the March quarter.
The company’s operating profit margin declined a bit on a sequential basis. Net profit increased about 17% compared to the June quarter to Rs269 crore. Even as it seems that satisfactory sales growth is still some time away, Nestlé India’s investors have little to complain about. The share price has appreciated 17% so far in 2016.
Hopes that Nestlé India’s sales will gain traction with the resolution of the Maggi issue have buoyed sentiments. Product launches have helped too. The firm has launched 25 new products or variants across categories in recent months.
Currently, the stock trades at a pricey 57 times estimated earnings for 2016. The company’s fiscal year is January-December. Faster sales growth will help in sustaining this valuation.