MOSL: NESTLE INDIA (Downgrade to Sell)-All-round disappointment despite weak base
​Nestle India: All-round disappointment despite weak base; downgrade to Sell
(NEST IN, Mkt Cap USD10.3b, CMP INR6820, TP INR5715, 16% Downside, Downgrade to Sell)
- Net sales were up only 8.7% YoY (est. of +20%) to INR24.8b (Ind-AS). EBITDA (Ind-AS) thus declined 7.5% YoY (est. of +28%) to INR5.1b, while PAT rose 1.8% YoY (est. of +36.1% YoY) to INR3.1b (Ind-AS). Being a calendar year-end company, this was the first quarter of Ind-AS numbers.
- Weak base makes revenue performance particularly disappointing: The base quarter had witnessed an 8% decline in sales as Maggi was only gradually scaling up after its re-launch in November 2015. 4QCY16 had actually posted decent growth YoY, despite demonetization. Gross sales increased 9.7% YoY in 1QCY17, but net sales growth was weaker owing to end of tax holiday at the Pantnagar unit from June 2016.
- EBITDA margin shrinks 370bp YoY: Gross margin contraction was higher than expected at 80bp to 55.8% (est. of -50bp), which management attributed to rising cost of milk derivatives. Staff costs increased by 60bp YoY and other expenses by 200bp YoY, the latter attributed to high energy and distribution costs due to a steep rise in fuel prices and stepped-up brand building/demand-generating activities. Consequently, EBITDA margin shrunk 370bp YoY to 20.6% (est. of +150bp).
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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