Nestle’s fourth quarter numbers show the company not only has a resilient product mix but also pricing power. Revenues grew 17 per cent to Rs 1,950 crore, as domestic sales held up at 16.7 per cent. This high growth comes on the high base of 26 per cent recorded in the corresponding quarter last year. Last quarter’s growth in revenue was driven by both rise in prices and volumes.
The company’s gross margins expanded 218 points year-on-year (y-o-y) to 54.6 per cent of net sales, on calibrated price rises through the quarter and some softening in milk prices. As a result, earnings before interest, depreciation and amortisation grew 25 per cent to Rs 410 crore and Ebitda margins improved by 138 basis points to 21 per cent. However, staff costs jumped to 7.5 per cent of sales due to business expansion, as did other expenditure.
Going by the robust performance in the December quarter, despite a high base, analysts expect the company to clock good volumes in 2012, on the back of new product launches. Demand may further get a boost with food inflation coming off.
Despite growth in the top line, profit after tax grew by only 13.5 per cent to Rs 230 crore on higher provisions. Higher taxes have also dented the company’s profits. According to Edelweiss Financial Services, the tax rate surged significantly by 347 basis points to 33.2 per cent as its Uttarakhand plant, which enjoyed 100 per cent tax exemption till recently, will now have a tax holiday only on 30 per cent of profit.
Himani Singh of Elara Capital expects the company to maintain a healthy volume growth across key business segments, thereby maintaining margins. Such expectations have resulted in the stock’s re-rating, too. Elara has increased the target price from Rs 4,248 to Rs 4,954. However, Edelweiss Financial Services feels at the current market price the stock appears fairly valued for the near term. Hence, it expects the stock to perform in line with the sector.
