Nestle Q4 preview: PAT likely to grow 16-19% YoY; may announce dividend

A continued increase in in-home consumption and demand for packaged food along with festive season is likely to have driven the growth for fast-moving consumer goods (FMCG) maker Nestle India during the December 2020 quarter, according to analysts, who see a nearly 10-13 per cent growth in revenue on a yearly basis.

However, on a sequential basis, the sales growth is likely to be flat or may dip marginally between 1-2 per cent, they believe.

Gross margins are likely to expand, led mainly by lower-cost inventory of milk which in turn is likely to drive the operating margins for the FMCG major. The profit for the period is expected to grow between 16-19 per cent on a yearly basis but could contract by 6 per cent sequentially.

During the October-December period, the firm jumped 15.5 per cent as against a 25 per cent rise in S&P BSE Sensex and 14 per cent gains in BSE FMCG index.

Commentary on recovery in trade channels and rural demand, new product pipeline and demand trends in packaged foods are among the key monitorables, according to analysts at HDFC Securities.

The firm, which follows January-December financial year, on February 9, 2021, informed exchanges that the board may consider a final dividend on February 16 when it would report its quarterly numbers.

Profit expectation

The Maggi noodles maker is expected to post double-digit revenue growth in its profit after tax (PAT) for the fourth quarter of the financial year 2020.

Sanjay Manyal, research analyst at ICICI Direct expects PAT to come in at Rs 552.1 crore, up 16.7 per cent YoY, but down 6 per cent quarter-on-quarter (QoQ). The firm had posted a net profit of Rs 473 crore in the same period last year and Rs 587 crore in the preceding quarter.

Brokerage Phillip Capital has similar PAT projection of Rs 549.1 crore that translates into 16.2 per cent growth yearly but a contraction of 6 per cent sequentially.

Analysts at Nirmal Bang, meanwhile, have the loftiest outlook of all of 19.7 per cent YoY growth in PAT.

Revenue projection

Sales growth during Q4FY20 will be driven by continuing increase in in-home consumption and festive season, said analysts at Emkay Global Research who see a 10 per cent jump in revenue at Rs 3,478.6 crore from Rs 3,149.3 crore posted in the same period last year.

Meanwhile, on a QoQ basis, the revenue is likely to slip by 2 per cent from Rs 3,541.7 crore posted in the preceding quarter of FY20.

Brokerage ICICI Direct has pegged revenue growth at 13 per cent YoY and 0.5 per cent QoQ at Rs 3,558.7 crore. "We expect Nestle to witness strong 13% sales growth on the back of an increase in inventory levels at the distributor end. Our channel check suggests that October sales were strong and November-December sales were muted. However, distributor level inventories have gone up 7-10 days," the brokerage said.

Meanwhile, analysts at HDFC Securities model an 11 per cent YoY revenue growth, led by continued demand for packaged foods.

Views on margin

Brokerage HDFC Securities expects 73 bps YoY expansion in gross margin on account of favourable base and product mix. "We model EBITDA margin expansion of 122 bps YoY to 23.5 per cent," it added.

Meanwhile, brokerage Phillip Capital said that benign milk prices are likely to drive gross-margin expansion while healthy operating leverage and cost-efficiency programme will boost EBITDA (earnings before interest, tax, depreciation and amortization) margin. It sees margin expansion of 118 bps YoY to 23.3 per cent.