shares overviews of food processing companies nestle india

Nestle India Ltd (updated - 23 Feb 2010)
For the fourth quarter ended December 2009, Nestle India reported a 6.7 per cent year-on-year decline in net profit at Rs 113 crore, despite sales surging 24 per cent to Rs 1,352 crore (on a lower base). The drop is largely due to increase in costs across the board. For instance, prices of key inputs such as milk solids (up 15 per cent), wheat (up 30 per cent) and sugar (up 100 per cent) touched record levels in 2009, resulting in higher raw material costs. The company’s cost of goods (Rs 652 crore) sold as a percentage of net sales rose 105 basis points to 48.2 per cent. Likewise, oneoff actuarial losses, arising due to revision of assumptions for retirement benefits, saw staff costs rise almost 65 per cent to Rs 137.62 crore.

Also, other expenditure rose 30 per cent to Rs 363.9 crore due to an increase in brand-building and demandgenerating activities, along with new launches. Thus, operating profit margins slipped to 14.67 per cent from 19.17 per cent in the year-ago quarter.

For the year ended December 2009, net sales rose 18.6 per cent to Rs 5,129 crore. These were helped by a20.4 per cent rise in domestic sales to Rs 4,801 crore (Rs 1,261 crore in the December quarter, up 25 per cent), led by an increase in volumes as well as realisations. However, exports fell 3per cent to Rs 329 crore, due to lower sales to Russia and Bangladesh. The decline, though, was partially offset by improved realisations due to the depreciation of the rupee in the first nine months of 2009.

For the year, the 22.6 per cent rise in net profit to Rs 655 crore was positively affected by tax benefits. These also made sure that the company’s net profit slipped by a lower margin in the fourth quarter, given that pre-tax profits were down nearly 14 per cent.

Going ahead, analysts expect the company to increase its capacity to meet the growing consumer demand in India. Nestle recently secured approvals from the Himachal Pradesh government for a Rs 250-crore food processing unit. The domestic demand is expected to sustain, supported by product innovations across categories and focus on distribution.

Analysts expect Nestle to witness a compounded annual growth rate of 19 per cent in revenue and 25 per cent in profit over CY09-11. Pricing power and a robust product portfolio should help maintain operating margins. The subdued results (declared on Friday evening) saw the stock close 2.4 per cent lower on Monday at Rs 2,580, wherein it trades at 25 times estimated CY11 earning per share.
source - BS

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Nestle India Ltd (updated - 04 July 2010)
Along with others in the country, the management at Nestle India would also be looking skywards and hoping for a normal monsoon. After all, a lot depends on rains, especially the companys profitability. Nestle India relies on the agricultural sector as it provides the company with key raw materials, the cost of which amounts to as much as 45 per cent of sales.

As witnessed in the quarter ended March, when liquid milk prices were higher by 30 per cent, wheat flour 70 per cent and sugar 25 per cent, the companys operating profit margins took a hit, declining to 20 per cent — almost 300 basis points below the previous year. Higher ad-spends and rising power and fuel costs also grew. As a result, net earnings for the March quarter were just about two per cent up.

Now, thanks to an unrelenting food inflation, pressure on the company’s margins remain. While sugar prices may have eased, milk and wheat flour rates remain on the higher side. The fuel price hike is also there for all to see. And, if the monsoon does not turn out well, there could be a telling impact. More so because the company finds it difficult to raise prices as competition is heating up, especially in noodles.

Maggi, the market leader with an 80-90 per cent share in the Rs 1,300-crore segment, is being challenged by Hindustan Unilever with its Knorr (Soupy Noodles) and GSK Consumer (Foodles). The market, according to analysts, is not growing seamlessly to accommodate new players. So, Maggi would have to shed some share. Overall, the Maggi brand accounts for 20-25 per cent of Nestle’s revenues and is the largest contributor to Nestle’s incremental sales growth.

The company would also be facing competition in the coming months in the milk products segment, with French player Danone making an entry in the curd market and intending to expand further. And, there are other worthy adversaries like Kraft (along with Cadbury) waiting on the fence to encroach onto Nestle’s territory.

The management has mentioned it would look at volume growth and will launch its cereal brands, too. It would also be looking at staggered price rises, believe analysts. So, even as these plans fructify, the hope remains for a good monsoon as well as a cooling down of prices.
source - BS