Motilal Oswal: Nestle India’s Sales Below Expectations, Ebitda In-Line
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Motilal Oswal Report
Nestle India Ltd.’s revenues for the quarter disappointed, weighed by ephemeral lockdown issues, which impacted manufacturing. We believe this would not pose much of a challenge going forward.
Ebitda margins were in-line likely due to advertisement spend cuts, aligned with peers that have reported their results thus far.
Gross margins contracted 190 basis points YoY to 56.3% on higher commodity costs, particularly the cost of milk and its derivatives.
Higher staff costs as a percentage of sales (up 170 basis points YoY to 12.1%) and lower other expenses as a percentage of sales (-440 basis points YoY to 19.4%) led to Ebitda margin expansion of 80 basis points YoY to 24.9% (estimate 23.8%) in Q2 CY20.
Nestle remains among the best structural plays in the Indian Consumer space, led by: (a) massive growth opportunity in the Indian Foods space, and (b) the evident revival in top line and earnings momentum ahead of peers in recent years.
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