We maintain our ?neutral? rating on Nestle India and assign a target price of R4,900 per share. At the current market price, the stock trades at 35.6x and 29.3x CY13e and CY14e earnings, respectively.
Nestle posted lower-than-expected numbers for Q1CY13. Net sales grew 9.8% to R2,240 crore (against our estimate of R2,320 crore). Adjusted PAT grew 6.2% to R292 crore (versus our estimate of R310 crore). While exports grew 51% due to 98% growth in exports to affiliates, domestic sales grew just 7.7%. We estimate 4-5% decline in domestic volumes. Weak macro, discretionary spending environment, Nestle?s aggressive price hikes and channel and portfolio rationalisation are hurting volume growth.
The company?s gross margin expanded 60 bps to 54.8% and Ebitda margin added 150 bps to 23.2% on account of savings in other expenditure. This is Nestle?s highest ever Ebitda margin. Ebitda grew 17.2% to R520 crore.
Capital costs were up 64%, depreciation grew 56% and interest cost was up ~3.5x due to the recent capacity expansion. Shift in accounting for interest expenses post project commissioning has also contributed to the spike in interest cost. Strong growth in other income (up 47%) led to 11% PBT growth. However, 190-bps increase in tax rate due to revaluation of deferred tax liabilities (subsequent to increase in surcharge from 5% to 10%) restricted adjusted PAT growth to 6.2%.
