The exponential rise of Nestle

The only thing to do with Nestle that no one seems to want to sell, are its shares. The companys stock price has more than doubled since last August and given the companys strong performance it seems that investors will continue to swarm around Nestle Pakistan in the foreseeable future. Nestle Pakistan saw its top line advance by 29 percent over the same period as its sales reached Rs32.9 billion. The companys gross margins remained intact over this period at 28 percent. Administrative expenses and distribution expenses also did not grow as quickly as the top line. Distribution expenses as a percentage of sales dropped to 11 percent compared to almost 12 percent during the same period last year. This reduction has been possible due to the economies of scale enjoyed by Nestle, and the companys newer competitors are currently spending a larger chunk of their pie on distribution as well as on administrative costs. However, Nestles management will do well to remain cognisant of any further slack that can be cut on this end. It is also noteworthy that the companys financing cost has doubled since last year in the first six months of CY11. What the company has going for is the solid stream of sales of a wide range of products from baby food and beverages to desserts, chocolates and beyond. The fast-moving consumer goods manufacturer has grown, really fast! In fact, Nestles sales have trumped the nominal growth in the countrys GDP, highlighting its robust progression. However all these tales of glory about the company are largely irrelevant for most investors as Nestles company accounts from the previous year showed that it had just 760 shareholders at that time. Aggressive buying by foreign funds has taken the stock to levels never witnessed before and consequently its weight on the KSE 100-index has also risen to rival that of OGDCL.

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Nestle Pakistan Ltd
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Rs (million)            1HCY11    1HCY10       chg
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Revenue                32,942    25,601        29%
Cost of sales          24,036    18,660        29%
Gross profit            8,906     6,942        28%
Gross margin               27%       27%
Administrative cost       719       574        25%
Distribution cost       3,743     3,030        24%
Finance cost              493       236       109%
PAT                     2,631     1,970        34%
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Source: KSE notice