With 10% YoY development, Nestle’s domestic revenues are in line with our expectations. Slightly improved GMs & reduce employees expenses helped and Op Ebitda development at 16% is ahead. Lower other earnings, nonetheless, resulted in an in-line outcome at the net level. Management is confident of managing disruption arising from the second Covid-19 wave even though the larger concern at the moment is on margins, following a sharp rise in input costs. We retain estimates & our Hold rating.
Double-digit development: Domestic revenues grew 10% y-o-y, equivalent to the trend noticed in the last two quarters. Overall income development was slightly reduce at 9%, as export revenues declined 13% due to reduce exports to affiliates. Key brands such as Maggi noodles, KitKat, Nescafe Classic, Maggi sauces, Milkmaid and Maggi Masala-ae-magic grew in double-digits. Unlike other FMCG peers, Nestle performed properly even in the March quarter last year and therefore Q1CY21 does not have a favourable base.
Out-of-property: Nestle’s out-of-property portfolio recovered additional q-o-q but remains impacted by Covid-19 disruptions. No comments created by the management on attainable disruption due to the second Covid-19 wave nonetheless, it does note that ‘the organisation has learnt to cope with the operating volatility in the pandemic’. However, nearby restriction would nevertheless effect the demand for OOH goods, in our view.
E-commerce: The channel witnessed 66% development y-o-y in Q1CY21 (just after 110% development in CY20) and now contributes 3.8% to domestic revenues.
Input inflation: Gross margin was a tad improved than our estimates, down only 50bps q-o-q and up 240bps y-o-y to 58.4%. Gross profit development was therefore powerful at 14%. However, going forward, management has sounded caution on the sharp escalation in costs of crucial inputs and packaging components, which may well effect GM.
Ebitda marginally above: Staff costs grew just 3% y-o-y (-9% q-o-q). This was partly offset by 14% development in other costs, led by greater A&P spends. Ebitda margin, expanded 170bps y-o-y to 25.8%, the highest level in 12 quarters. As a outcome, Ebitda development of 16% was marginally improved than our estimates.
EPS in line: PBT grew 14% due to reduce other earnings (-31% y-o-y). Pre-ex earnings grew 13% to Rs 6. bn and was in line with our estimates.
Retain Hold: We largely sustain our EPS estimates. We anticipate restricted provide disruptions, at least for now due to localised restrictions, as opposed to last year, along with the learnings & improved preparedness on the aspect of the market, incl. Nestle. However, out-of-property demand would probably get impacted, like last year. Inflation in crucial input costs would be a crucial monitorable going forward. We retain Hold rating with a PT of Rs 18,000.