Nestle India's Q1CY18 results (Outperformer) - Another blowout quarter... another earnings upgrade!
Q1CY18 result highlights
- Nestle India’s net sales were up by 10.5% yoy to Rs27.4bn(est: Rs27.7bn), EBITDA increased by 35% yoy to Rs6.8bn(est: Rs6.2bn) and PAT increased by 38% yoy to Rs4.2bn (Rs3.8bn).
- Domestic sales (net of excise) increased by 10.9% yoy. Comparable domestic sales increased by 13.4% yoy led by volume growth across segments. We estimate volume growth for the quarter at 11-12%.
- Gross margins improved by 300bps yoy to 58.8% aided by lower input costs (milk & milk solids). Staff cost increased by 9.3% yoy and other expenses increased by 4.6% yoy. Resultant EBITDA increased by 35% yoy with a margin expansion of 450bps yoy at 24.7%.
- Depreciation expense decreased by 4.8% yoy. Other income increased by 33% yoy & interest expense increased by 36.5% yoy, while ETR was up 190bps yoy (end of tax holiday at Samalkha unit), resulting in PAT growth of 38% yoy.
Key positives: Healthy volume growth and margin expansion
Key negatives: Higher effective tax rate
Impact on financials: Factoring strong operational performance, we increase our CY19/CY20E earnings by 2%/4% respectively.
Valuations & view
This is the third consecutive quarter that Nestle has delivered an earnings beat resulting in another round of earnings upgrade. Volume growth at 11-12% (estimated) for the quarter is likely to be among the highest across peers in the FMCG space. With continued share recovery in key categories and introduction of new products, we expect Nestle to deliver a third consecutive year of double digit volume growth in CY18. Further, with key input costs staying benign and continued overhead cost control coming through, we expect Nestle to report 20% earnings CAGR over CY17-20E. Given the continued improvement in earnings growth trajectory and possible earnings upgrades even from current levels, we believe that premium valuations of 45xCY19E and 38xCY20E are justified. Maintain Outperformer; Nestle remains one of our top picks in the FMCG space.
Nestle India is engaged in the food business. Co.'s product groups are: milk products and nutrition; beverages; prepared dishes and cooking aids and chocolates and confectionery. Co.'s milk products and nutrition include: NESTLE a+ Milk, NESTLE Slim Milk, NESTLE a+ Dahi, NESTLE Slim Dahi and MILKMAID Sweetened Condensed Milk. Co.'s beverages include: NESCAFE, NESCAFE SUNRISE and NESTEA. Co.'s prepared dishes and cooking aids include: MAGGI Noodles, Veg Atta Noodles, Multigrainz Noodles and 2-Minute Noodles, MAGGI HUNGROOO, MAGGI Magical Masala Noodles, MAGGI Masala-ae-Magic spice mix and MAGGI Soups.Co.'s chocolates and confectionary include: Nestle KITKAT, NESTLE MUNCH and Nestle MILKYBAR.
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