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Nestle India gains 5% on healthy December quarter results

SI Reporter/Mumbai 15 Feb 18 | 09:58 AM

Nestle, which internationally has over 2,000 brands, is betting on its pharma business to reduce dependence on Maggi in India

Nestle India has surged 5% to Rs 7,645 on the National Stock Exchange (NSE) after the company reported 59.5% year-on-year (YoY) growth in net profit at Rs 3,118 million in December 2017 quarter (Q4CY17). The revenue from operations grew 10% at Rs 25.9 billion over the previous year.

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Nestle India said total sales and domestic sales for the quarter increased by 10.9% and 10.8%, respectively on a base impacted by withdrawal of high denomination currency notes in circulation.

These growth rates are adversely impacted due to lower reported sales by the change in structure of indirect taxes and reduction in realisations to pass on the Goods and Services Tax (GST) benefits, it added.

On a comparable basis the domestic sales growth is 'estimated' at 18.1% due to increase in volumes including rebuild of MAGGI Noodles, supplemented by better underlying realisations coming from previous periods.

EBITDA (earnings before interest, tax, depreciation and amortization) margin during the quarter under review improved to 20.7% from 16.5%.

Analysts at Antique Stock Broking expect during 2018, Nestle India to record continued recovery in revenue led by better growth rates in instant noodles and chocolates and confectionaries.

Additionally, foray into new categories and product innovations are likely to drive growth. More importantly, we believe the moderation in prices of key raw material; milk will aid margin expansion and drive higher earnings growth during 2018, the brokerage firm said in a result review with maintain ‘buy’ rating on the stock with a target price of Rs 8,894.

Analysts at SBICAP Securities also maintain ‘buy’ rating on Nestle India with target price of Rs 8,300.

Nestle’s growth momentum has been improving because of the measures undertaken to boost volume-led growth over the last few quarters. With the input price environment becoming favourable, we believe Nestle would enjoy a margin benefit around 200bps, which can help it deliver strong earnings growth, the brokerage firm said in result review.

The foray into petcare in India through its wholly-owned subsidiary instead of Nestle India remains a disappointment. While the management needs to address this issue, we believe the recent 10% correction and an improving earnings outlook may partially offset the negative impact of the same, it added.

At 09:53 AM; the stock was trading 4% higher at Rs 7,546 on the NSE, as compared to 0.63% rise in the benchmark Nifty 50 index. A combined 123,290 equity shares changed hands on the counter on NSE and BSE so far. The stock hit a 52-week high of Rs 8,039 on December 14, 2017 in intra-day trade.

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