Nestle: Growth in sales

ANALYSTS' CORNER

Enam Securities, in its results update, rates Nestle as "neutral", relative to the sector. The report states the company's sales grew to Rs 2470 crore (up 11 per cent y-o-y) in 2005 from Rs 2220 crore in 2004.

EBITDA margin increased by 100 bps to 20 per cent on the back of selective price increases and favourable product mix during the year.

Domestic sales grew by 12 per cent due to price increases and consumer uptrading, while exports grew by 6.4 per cent driven primarily by value growth.

Export markets continue to remain competitive and the report estimates a five per cent value growth in 2006. The report has estimated an eight per cent domestic volume growth in 2006, lower than the historical growth rate.

The positive impact of selective price increases, higher volumes and favourable product mix has been partly offset by an overall increase in commodity prices and fixed costs. EBITDA margins are expected to increase by another 100 bps at 21.4 per cent in 2006.

Marico: Expanding operating margin

JM Morgan Stanley is overweight on Marico. The report sees potential upside for the company. This mid-cap company is witnessing a paradigm shift in its business profitability.

About 1000 bps ROE improvement is expected in the next three years and is likely to be one of the fastest growing companies in terms of earnings, with 34 per cent earnings CAGR forecast for 2005-08.

The stock has underperformed its mid-cap peers in the consumer space over the past three years. But the report states it is set to be re-rated. Operating profit margin is expected to expand almost 500 bps as Marico exercises its pricing power.

Consolidation in the coconut hair oil industry (top two players now have an 80 per cent share), Marico's increasing dominance (now over 60 per cent market share) and a sharp fall in input prices (25 per cent decline during 2005) are likely to be drivers of the company's improved pricing power.

ITC: Diversification proves fruitful

Prabhudas Lilladher recommends a "buy" on ITC. The report states the company has been steadily diversifying its business portfolio by leveraging its brands, distribution network and balance sheet strength.

This has been achieved over the years by timely investments in non-cigarette businesses, which are expected to grow significantly in the medium to long term.

The company's core cigarette business also continues to grow steadily, with undiminished pricing power and cash generation.

The report believes ITC's synergistic diversification, continuing strong growth and profitability have set the stock on the path to steady and consistent re-rating. The cigarette division is expected to record a 10.9 per cent CAGR from FY05 to FY08.