Nestlés strong despite competition

In a country that has been experiencing huge population and consumption growth, there seems to be no end in sight to the growing demand for packaged goods.
Cashing in on this voracious appetite Nestlé Pakistan Ltd, reported 25 percent jump in its top line during the first nine months of the current year, with contributions stemming from all key brands.
In the face of rising retail prices, a combination of booming commodity prices, growing inflationary pressure and rising energy cost pruned gross profit margin to 27 percent.
However, efficient product mix management and continuing emphasis on cost control helped mitigate the negative impacts on the bottom line, lifting net profit margin to 8.1 percent from 7.5 percent a year earlier.
With FMCGs becoming the rage, aided by changing lifestyle and growing clout of media, future of Nestle Pakistan looks promising. It has been estimated that food consumption industry in Pakistan will grow by 36.2 percent till 2014, according to Business Monitor International, a leading and independent information provider of country risk and industry research headquartered in London.
But, behind this palatable industry, lies tough market competition, with various companies diversifying their business into FMCGs. Nestle and Engro foods are neck and neck in the competition to serve UHT processed milk market. While, on the other hand, Engro has also stepped into tea whitener segment this year, forcing Nestles Everyday to share the shelf with Tarang powder.
Nestlés iconic baby food brands are on the safer side, enjoying market leader position in various products. Moreover, Engros Olfrute poses no threat to Nestles food drink segment, as it will take time for Engro foods to make space for its fruit juice segment in the market.
In keeping with growing availability of variety of brands in the local market, with small companies following suit, Nestle needs to adopt bolt-on marketing strategies to protect its market share.
Moreover, there are chances that local dairy industry might also induce foreign companies to plow funds in this lucrative market. Though, it is not officially confirmed, but market expects Almarai, largest integrated dairy foods company in the Middle East, will at least develop a business case for investment in Pakistans dairy industry.

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Nestlé Pakistan Ltd

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Rs (mn)                   9MCY10   9MCY09   %chg

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Sales                     38,273   30,501    25%

Cost of sales             27,783   21,546    29%

Gross profit              10,490    8,955    17%

Gross margin                 27%      29%    -7%

Administration expense       895      796    12%

Distribution expense       4,357    3,917    11%

Finance cost                 303      371   -18%

PAT                        3,096    2,292    35%

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EPS (Rs)                   68.28    50.55

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Source: KSE notice

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