Revenues of Rs 24.92 bn rose 9% y-o-y and were 4% ahead of estimates. We infer the impact of promos and demonetisation related impacts weighed upon GP margins. Overall Ebitda at Rs 5.2 bn missed estimates by 6%. Lower other income exacerbated the miss. PAT came in at Rs 3.16 bn and was 10% below estimates.
Volume led revenue growth
Most of the domestic revenue growth of 9.7% y-o-y is driven by volume growth, with marginal pricing gains from carryover pricing. With GST around the corner, we think management will wait to see the fine print before taking pricing actions. Relative to peers, Nestle appears to have better revenue growth, but that also includes the market share recapture within Maggi noodles—on a two-year basis, adjusted for the Maggi noodles issue, there has been no revenue growth.
Forecasts cut yet again
We have notched down revenues by 1% over CY17/18e, but with constrained pricing/ higher cost inflation, the impact on Ebitda is 5-7%, whilst the impact on EPS is 7-9%. Despite the recovery in Maggi noodles, it would appear that category growth across all key categories is quite sluggish.
We like the focus on renovation/innovation in most categories. But competition is intensifying. We see A&P spends going up. The stock is trading at 44x CY18E EPS, and while it has derated a bit in recent months, we still think the valuation bar is very high. Maintain Sell, lower target price to Rs 5,650 (vs. Rs 5,800) despite roll forward to 37x Mar19e EPS.