Food inflation hurts Nestle

Fri, 23 Apr 11:30 am

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BSE-Sensex is trading higher by 126 points while NSE-Nifty is trading 36 points above the dotted line. BSE-Midcap Index is up by 0.6% while the BSE-Smallcap index is trading 0.8% above yesterday's closing. The rupee is trading at 44.56 to the US dollar

Nestle India released its 1QCY10 results yesterday. The company posted a healthy 17% YoY sales growth with the domestic business growing by 16.7% YoY and exports growing by 20.4% YoY. The growth in the company's top line has largely been volume driven. During the quarter, the company's operating profit was under pressure due to rising raw material prices especially of milk, sugar and wheat. However, Nestle consciously decided against passing on food inflation to its customers and instead focused on expanding volumes. As a result of this strategy, the company's bottom line grew by only 2.3% YoY. The company has also declared an interim dividend of Rs 9 during the quarter. While food inflation is expected to come down, the company will have to take corrective action to protect its bottomline.

India's third largest IT exporter, Wipro announced its FY10 and 4QFY10 results today. Though the performance in 4QFY10 remained muted on account of headwinds of wage increases, rupee appreciation and the impact of cross currency movements, the company managed to post robust performance for FY10. While topline remained flat for 4QFY10, its net profits declined by 1% QoQ on account of margin contraction. Nevertheless, during FY10, the topline and the bottomline increased by 6% YoY and 18.5% YoY respectively.

The robust performance for the fiscal was driven by Wipro's IT services division which contributed around 75% of Wipro's consolidated revenues and grew by 6% YoY. Wipro's IT products division which contributes over 14% to company's topline registered a robust growth of 11% YoY. Consumer care and lighting division grew by 14% YoY during FY10. It appears that the business environment is returning to normal for Wipro and its peers in the Indian IT industry. The company expects its revenues from IT services to grow by 2% to 4% (in dollar terms) in 1QFY11.