Nestle India: Sizzling performance

Maggi maker Nestle India reported a 13.54% on year (YoY) jump in consolidated net profit at Rs 525.43 crore for the March quarter, compared with Rs 462.74 crore in the same quarter last year.
Revenue from operations for the quarter jumped to Rs 3,325.27 crore from Rs 3,002.95 crore in the year-ago quarter.
Nestle remained resilient in the Jan-Mar quarter, as the numbers indicate, and delivered volume and mix led growth. Maggi, KitKat and Nestlé Munch delivered strong performances. In fact, the quarter results show no sign of virus-related business stress.

Contribution from e-commerce went up significantly, while out of home sector performance was subdued. Commodity prices for milk and its derivates continued to be on the rise during the quarter
The company’s domestic sales, which account for 95% of operating revenues, have increased 10.7% on year, a faster pace than the previous two quarters.

Nestle derives all of its sales from its food products portfolio.
Its presence in the staple categories of dairy, noodles, ketchup and confectionery helped post brisk sales despite restrictions on public movement.
Nestle’s portfolio remains more resilient and less affected in Q1 than peers, Q2CY20 trends are likely to be weaker due to lower manufacturing and supplies.

Nestle India’s financial year ends in December. Nestle’s domestic performance implies double-digit volume growth.
Notwithstanding the better revenue performance, commodity prices for milk and its derivates continued to rise last quarter. This led to a 220 basis points fall in the gross margin. One basis point is one-hundredth of a percentage point.

Give the advantage it derives from product portfolio, Nestle faces little competition from larger players, and hence better valuations.
Since its inclusion in Nifty50 in September 2019, the Nestle stock has rallied 25% and hit a record high in mid-April. Little wonder then that Nestle is trading at higher valuations (PE of 83).

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