The general refrain from those familiar with Nestle's history is that thelast quarter of the year (the company follows a December year ending) willbe better and will be the best so far in the current year. However, in thenine month period ended in September 1999 the company has done little ofnote. "The current year has been one of consolidation for Nestle," saysDeven Sangoi, equity analyst, Alchemy Finance. Nestle India reported a 21per cent profit growth for the nine-month period but most of this growthcame in the first two quarters. The latest quarter has produced no profitgrowth whatsoever. The nine month's sales growth was just 6.5 per cent,while the Q3 growth was under two per cent.Earlier in the year, the perception surrounding the business took a hitfollowing the collapse of its export market in Russia. This hampered thestock and that impact is still being felt. Export sales are down by 48 percent over the last nine months. Subsequently, the company has become heavilydependent on the domestic market for its growth. Its basic businesses are inbeverages and confectionary both of which are very competitive as a resultof which both operating margins and bottomline growth have been underpressure. The company alsos had to effect a price reduction for its primecoffee brand, Nescafe, in an attempt to push volumes.
But there is some optimism for the last quarter for several reasons. It isboth the festive season as well as the onset of winter which usually gives aboost to its beverages and chocolate businesses, besides increasing soupsales.
Sundram Fasteners
Sundram Fasteners (SFL), has reported an even better second quarter ascompared to the performance that it displayed in the first quarter, with thegood growth seen earlier becoming much better. A good performance wasexpected yet the results came as a pleasant surprise to the stock market.The SFL stock reacted favourably to these results appreciating by 15 percent from Rs 680 to Rs 770 in a few days.
The fortunes of this company is closely linked to those of the heavyvehicles segement. This has held true even though the company has got alarge export business and strong international clients such as GeneralMotors and Daimler Benz, which saw it through the downturn in the Indianautomobile industry. But the moment there was a recovery in the commercialvehicles sector and an increase in offtake of fasteners, the bottomlineimproved dramatically. In Q2, the company has reported a near doubling ofits profit after tax from Rs 6.73 crore to Rs 13.11 crore (PBT was up byover 100 per cent). More significantly, over the first quarter there hasbeen a 30 per cent growth in net profit in Q2. The Q1 net profit was Rs 10.2crore.
The company makes a variety of fastners for use in automobiles. Besidesheavy vehicle manufacturers and its foreign buyers, it has also begunsupplies to Telco's Indica model.
The increased production of the Indica in the second quarter has played arole in boosting SFLs volumes and profitability. The double digit growthrates should continue into the remainder of the year as well.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.