Nestle India nears record high, up 4% on good Q2 results, dividend bounty

Shares of Nestle India rallied 4 per cent intra-day to Rs 11,912 apiece, in an otherwise weak market, on the BSE on Monday after the company reported a good April-June quarter (Q2CY19) results. The fast moving consumer goods (FMCG) company also declared a dividend of Rs 203 per share, including a special dividend of Rs 180 per share.

The stock was trading close to its record high level of Rs 12,026 touched on July 1, 2019 on the BSE in the intra-day deal.

The dividend of Rs 203 per equity share includes an interim dividend comprising of Rs 23 per equity share for 2019, and a special interim dividend of Rs 180 per equity share out of the accumulated profits of previous years. It will be paid on and from 23 August 2019.

“The distribution will be out of the current treasury position after adequately providing for future requirements. This cash payout will reduce the future generation of 'other income' and will improve the overall capital efficiency,” Nestle India said in a press release.

On Friday, Nestle India reported a 11 per cent year-on-year (YoY) rise in net profit to Rs 438 crore for the second quarter ended June 2019, led by sales and volume growth. Total sales increased by 11 per cent at Rs 2,983 crore on YoY basis.

Domestic sales rose by 13 per cent at Rs 2,835 crore largely driven by volume and mix and positively influenced by sales to CSD and sale of surplus fat. The export sales dropped by 14 per cent due to lower coffee exports to Turkey, the company said.

However, EBITDA (earnings before interest, tax, depreciation and amortization) margin declined by 107 bps to 23.6 per cent YoY.

"The company has a strong product portfolio with strong pricing power. The management, however, is currently concentrating more on driving volume with deeper penetration with distribution expansion. Current sales numbers where domestic business grew by 13 per cent signifies the same considering weaker demand scenario," analysts at Narnolia Financial Advisors said in result update.

Going forward, the company’s continued focus on innovating and renovating its brands, new launches in nutrition segment, emphasis on expanding penetration in categories where penetration is relatively low, is expected to drive revenue growth. Change in product mix and judicious pricing is likely to cushion declining margin in the wake of higher input prices, the brokerage firm said, with ‘buy’ rating on the stock and target price of Rs 13,472 per share.

At 11:51 am, Nestle India was up 2 per cent at Rs 11,690 on the BSE, as compared to 1.5 per cent decline in the S&P BSE Sensex. A combined 61,412 equity shares have changed hands on the counter on the BSE and NSE so far.

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