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Nestle India Ltd (updated - 05 Aug 2009)
That Nestle continues to command pricing power is reflected in its high gross margins for the June 2009 quarter, which increased by close to 200 basis points driven by price increases and efficiencies. That resulted in a top line growth of nearly 17 per cent despite exports coming down by about 13.5 per cent — the sixteenth consecutive quarter of high doubledigit growth in the home market.

Of course, over the past two quarters, sales in the domestic market have grown at close to 20 per cent compared with 24 per cent growth recorded for two years before that. Nevertheless, it’s evident that the food major’s brands are popular and find takers even at high prices. Despite prices of milk and sugar having been fairly high during the quarter, lower prices of other key inputs helped push up operating profit margins by nearly 300 basis points to around 22 per cent.

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While the company has spent more on employees, it has managed to save on overheads. Its profit after tax increased by a strong 34 per cent to Rs 162 crore, helped by some substantial savings in taxes. Nestle has not only built some strong brands, it is willing to sell to customers at varying price points. As such the stock is a great play on the growing affordability and aspirations of Indian consumers.

At Rs 2,179, Nestle trades at nearly 30 times estimated calendar 2009 earnings and is the most expensive stock in the FMCG universe. The stock has almost always commanded a huge premium
to peers - it has outperformed the Sensex by about 50 per cent in the last three years - and should continue to do so.
source - BS

Nestle India Ltd (updated - Mar 2009)
At Rs 1,431, Nestle trades at close to 22 times estimated 2009 earnings, among the most expensive stocks in the FMCG universe as also in the market. The stock has traded at 20 plus multiples for some time now but given the weak environment, it’s possible it could shed some of that premium.

For one, the slowdown in the economy could hurt the Rs 4,324 crore food major’s business because its food products are positioned in the premium segment and some, such as chocolates, are bought on impulse. Coffee too has sold less during past downturns with consumers switching to cheaper products.

Also, much of the pull for its products was expected to come from the spread of organised retail, which hasn’t quite taken off at the pace one might have expected. But while the 20 per cent plus growth in the top line, that it has now pulled off for eight consecutive quarters, might elude the firm till the economy is back on the rails, Nestle should manage a 15 per cent sales growth in 2009.

That would of course mean a tapering off of the growth in profits - after turning in an increase of around 30 per cent in the last two years, the rise in 2009 would be a far more subdued sub-20 per cent.

Not that there is much evidence yet of the business slowing down. In the December 2008 quarter, revenues were up 21.7 per cent and would have been better had it not been for the fall in exports. Sales in the home market actually grew at 25 per cent and with prices of inputs easing, the company posted an increase in operating margins of close to 200 basis points at 19 per cent.

What should help the company continue to attract more consumers are the numerous new launches across categories - it has introduced variants in milk, chocolate and coffee. Moreover, Nestle’s strategy of exploring lower price points - such as the Rs 10 pricing for coffee - should pay off. That’s what makes the stock a good long term play on increasing disposable incomes and aspirations.
source - BS

Nestle India Ltd (updated - 11 Nov 2009)
Foods major Nestle has again demonstrated how powerful a portfolio of brands it has with gross margins expanding 240 basis points to 52.2 per cent in the September 2009 quarter. Of course the fact that prices of key inputs, except sugar, remained more or less stable during the quarter helped bring down costs.

But the company was also able to improve its product mix and thereby earn better realisations, reflected in its top line, which grew 17.6 per cent to Rs 1,302 crore. Sales were driven by an 18 per cent growth in the home market, the 17th consecutive quarter of high-double-digit revenue growth.

However, increase in staff costs and higher spends on advertising and marketing meant that operating profit margins, at 20.3 per cent, expanded by just 160 basis points. A lower tax rate of just 27 per cent helped push up profit after tax by 38.7 per cent to Rs 182.8 crore.

With Indian consumers increasingly able and willing to spend on branded and processed foods, Nestle should continue to command pricing power given that there is limited competition for many of its products. Also, the company has been trying to increase penetration, especially in non-urban markets, by launching its brands at lower price points.

That, together with the growth of organised retail in bigger cities, should help Nestle sustain double-digit volume growth. In the current year to December 2009, the company is expected to grow revenues by just under 17 per cent to around Rs 5,100 crore, while net profits are estimated to grow 32-34 per cent over those reported in 2008.

Next year, though, profits are estimated to grow 18-20 per cent. The stock has had a great run and at Rs 2,663, trades at around 30 times estimated calendar 2010 earnings. Nestle has almost always commanded a big premium to peers in the FMCG space and that trend should continue.
source - BS