The premium positioning continues to work for food major Nestle though there are signs of consumers cutting back on spends in some categories. While domestic sales for the firm rose a decent 19 per cent in the March 2009 quarter to Rs 1,266 crore, analysts point out that the growth doesn’t quite match up to the average of 24 per cent seen in the last eight quarters.
The good news is that most products recorded higher volumes — 30 per cent more for prepared dishes and over 10 per cent for the milk category —reflecting the strength of the brands even in a downturn. Realisations too were better for some categories and that together with lower raw material costs and some savings on overheads pushed up operating profit margins by about 165 basis points to 24.5 per cent. The stronger margins drove up the net profit by 22 per cent to s 208 crore.
Given that the economy is yet to come out of the downturn and consumers may curb their impulses to buy premium products, analysts are pencilling in a top line growth of sub- 20 per cent in 2009 over the Rs 5,154 crore posted in 2008.
While prices of some inputs such as packaging, could ease it’s possible that prices for sugar, wheat and milk could remain firm. As such the operating profit margin for the year should be more or less at the 20 per cent levels recorded last year. The stock has had an excellent run and but at Rs 1769, trades at 27 times estimated 2009 earnings. That makes it the most expensive stock in the FMCG pack and given that growth is tapering off, it could well take a breather.
