Nestle India's Q3CY18 results (Outperformer) - A near perfect quarter!
Q3CY18 result highlights
- Nestle India’s net sales were up by 17% yoy to Rs29bn(est: Rs28bn), EBITDA increased by 24% yoy to Rs7.1bn(est: Rs7.16bn) and PAT increased by 30% yoy to Rs4.46bn (Rs4.5bn).
- Domestic sales (net of excise) increased by 17.5% yoy. led by volume growth across segments. We estimate volume growth of ~14% for the quarter.
- Gross margins improved by 290bps yoy to 59.5% aided by lower input costs (milk & milk solids).
- Staff cost increased by 12.8% yoy and other expenses increased by 26% yoy largely due to increase in marketing spends & higher fuel prices. Resultant EBITDA increased by 24% yoy with a margin expansion of 140bps yoy at 24%.
- Depreciation expense decreased by 8% yoy. Other income increased by 50% yoy & interest expense increased by 20% yoy, resulting in PAT growth of 30% yoy.
Key positives: Acceleration in volume growth
Impact on financials: We have marginally increased our CY18-20E estimates by 0.6-1%.
Valuations & view
Nestle reported yet another quarter of strong earnings led by double digit domestic volume growth (on high base of 9% volume growth) for second consecutive quarter and continued margin expansion. With core brands continuing to do well and pace of innovation accelerating, double digit revenue trajectory (factoring 14% CAGR over CY18-20E) is likely to sustain. While wheat/crude linked commodity prices have inched up & high gross margins are now in base, we believe, sustaining margins won’t be challenge considering benign milk/SMP (38%of COGS) prices, Nestle’s pricing power coupled with leverage benefit on account of healthy volume trajectory. With superior earnings visibility compared to peers (18% earnings CAGR over CY18-20E), premium valuations of 45x/38x CY19/20E earnings are likely to sustain. Maintain Outperformer; Nestle is our top large cap FMCG pick.
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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