Dear All,
Forwarding you the 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).
Kindly click on the following link to view the Report.
If you have any further queries, feel free to call us on 022 39357600, Extn: 6864 / 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6864,6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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