The Nestle scrip had risen from around Rs 325 in mid-May to Rs 522, a gain of more than 60 per cent in less than 3 months. The scrip is now under reaction. The scrip had hit a peak of Rs 654 in November, 1999. For the second quarter of 2000, Nestle posted a net profit of Rs 37.1 crore, against Rs 28.5 crore in the same period last year. Net profit for the first half went up to Rs 65.2 crore. The equity capital of the company stands at Rs 96.42 crore. For FY 1999, the company had posted a net profit of Rs 98.47 crore giving an EPS of Rs 9.31. With the book value at Rs 29.95, the return on net worth stood at 38.46 per cent.The scrip rose at the end of May to Rs 400 level. The rise in May and the continued stability uptil July was in tandem with the rise in Sensex. However, later, as the Sensex slipped, Nestle kept moving northwards.
Noodles was a learning experience for this FMCG, whose native expertise was more in milk products and chocolates. The relaunch of 2-Minutes Noodles gave the company an opportunity to catch back to `sab kuch pehle jaisa'! Nestle expanded its portfolio to include macaroni, soup, ketchup, pickle, cooking bases and culinary mixes. Irrespective of the contribution of each of these groups to the bottomline, the learning experience in product launch and brand building cannot be underestimated.
Irrespective of the contribution of each of these groups to the bottomline, the learning experience in product launch and brand building cannot be underestimated.
Maggi soups invited good competition from Corn Products in flavour, packaging and advertising. Earlier, the company created a market for macroni right from scratch. The Ketchup formula with its hot and sweet version proved to be easier.
These are quite an achievement for an FMCG in adapting products to Indian tastes. Nescafe and Sunrise have given the company a good share of the market.
The presence in milk-based products like Lactogen, Cerelac and Milo is equally strong.
Kit Kat, the world-wide brand came in handy for the Indian outfit. It had been well-established globally. Nestle had earlier set a target to reach a sale of Rs 3000 crore by FY 2000. This has been an ambitious target. What we do see is that the company is able to post a growth of 15-25 per cent per annum. Quite likely, it will close FY 2000 with a sale of Rs 2,200 crore. EPS could be around Rs 14.
The scrip is more or less fully-priced. Profit-booking is the right thing to do, as further upside potential is limited. The scrip could slide back to Rs 430 at the first leg and later to Rs 375. Rs 380 is a strong base as much volume has been bought above this price. The latter appears to be institutional buying, including perhaps FII buying. The daily stochastic indicator has signalled a sell. Collect your profit.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.