Sunday, April 24, 2011

Nestle - RU1QCY2011 - Reduce

Result Update on Nestle for 1QCY2011 with a Reduce recommendation and a Target Price of `3483.

 

Nestle reported strong set of numbers for 1QCY2011, beating our expectations by ~2% both on the top-line and earnings fronts. The company's top line grew by 22.3% yoy (largely driven by domestic volumes), while earnings grew by ~26.7% yoy (against our expectation of 24.8% yoy growth). During the quarter, Nestle's margin expanded on the back of cost rationalisation and robust top-line growth. Post 1QCY2011 results, we have tweaked our estimates. We maintain our Reduce view on the stock with a target price of `3,483.

 

Strong top line boosts results, gross margin recovers, though still under pressure: Nestle registered robust top-line growth of 22.3% yoy to `1,810cr, driven by steady growth in its net domestic sales (up 23.1% yoy to `1,712cr, supported by steady volume growth and higher realisations across categories). Earnings (on a reported basis) registered 26.7% yoy growth to `255.7cr, aided by margin expansion. Gross margin expanded by 100bp yoy due to improved product/channel mix and discontinuing of free goods promotion by the company, despite higher cost inflation in milk and sugar prices.

 

Outlook and valuation: At the CMP, Nestle is trading at ~139% premium to the Sensex, significantly ahead of its five-year average historical premium of ~78%. We render caution on Nestle's high premium to the Sensex on account of 1) gross margin pressures due to rising input costs and 2) competition in the high-growth noodles category from HUL (Knorr Soupy Noodles), GSKCHL (Horlicks Foodles) and ITC (Sunfeast Yipee). Hence, we maintain our Reduce view on the stock with a revised target price of `3,483 (`3,503).

No comments:

Life Insurance | Health Insurance | Auto Insurance


Investors Please Listen !

 
More than 100 kinds of Insurance products from more than
20 companies under one roof.



Call: 9818269396 
investorspleaselisten@in.com
www.investorspleaselisten.blogspot.com

 

 

Safe Harbor:

The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
Powered by Olark
Advertising Learn to Invest