Motilal Oswal neutral on Nestle India

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Motilal Oswal neutral on Nestle India

Motilal Oswal has maintained neutral rating on Nestle India with a target of Rs 4282, in its February 15, 2012 research report.

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Motilal Oswal has maintained neutral rating on Nestle India with a target of Rs 4282, in its February 15, 2012 research report.

"Nestle India (NEST) posted in-line results for 4QCY11, with adjusted PAT at INR2.7b v/s our estimate of INR2.6b. Domestic sales grew 16.7% YoY, led by a mix of volume growth and price increases. Overall sales grew 17% v/ s our estimate of 21.3%. Exports grew 23.2% due to gains from INR depreciation, partly neutralized by ban on exports of milk powder. Gross margin expanded 220bp YoY and 280bp QoQ, as high input costs were more than offset by (1) higher prices, (2) improved channel mix, and (3) INR depreciation. EBITDA grew 25%; EBITDA margin expanded 140bp despite 40bp increase in each of staff cost and other expenses."

"NEST has not provided for MTM loss of INR1.17b on forex loans from parent company for ongoing expansion. Loans at the end of CY11 stood at INR9.7b. While volume growth numbers point to slowdown, long-term outlook remains encouraging due to NEST's brand power in segments like Instant Coffee and Prepared Dishes. Also, in Infant Nutrition, there are significant entry barriers for new players. NEST's fixed assets (including CWIP) increased from INR13b to INR30b, the fastest pace of expansion in its 100-year history. We expect NEST to increase the pace of innovation and new product launches, as its new units start and stabilize. We do not rule out positive surprises on volume growth. The stock trades at rich valuations of 35x CY12E and 29x CY13E EPS, which limits the scope for further re-rating. Maintain Neutral," says Motilal Oswal research report. 

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