MOSL: NESTLE INDIA (Neutral)-Benefit of benign commodity cost receding
Nestle India: Benefit of benign commodity cost receding; Maintain Neutral
(NEST IN, Mkt Cap USD14.5b, CMP INR10313, TP INR9815, 5% Downside, Neutral)
- Net sales were up 12.3% YoY to INR27b (est. of INR27b). Domestic sales grew 8% YoY – comparable growth likely to be ~14.5%, while exports increased 15.7% YoY.
- Gross margin of 59.6% (+460bp YoY) was ahead of our estimate, driven by favorable commodity cost. We, however, note that NEST is now witnessing headwinds in commodity prices.
- EBITDA margin expanded 550bp YoY (est. of +350bp) to 24.6% on account of 100bp YoY savings in other expenses (to 24.5% of sales) in 2QCY18. EBITDA grew 44.9% YoY to INR6.6b (est. of INR6.1b). Adj. PAT grew 59.3% YoY to INR4.2b (est. of INR3.9b).
- 1HCY18 performance: Sales, EBITDA and adj. PAT grew 9.6%, 39.6% and 48%, respectively. EBITDA margin expanded 510bp YoY to 25.2%.
- Other points: NEST’s key brands – Kitkat, Nescafe and Maggi – have continued witnessing strong growth in the market. The company has also introduced breakfast cereals with NESPLUS and canned beverages with NESCAFE RTD.
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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