Analysts come down heavily on Nestle India

MUMBAI: Analysts have come down heavily on Nestle India for an exaggerated focus on margins and consistently hiking prices of several of its products in recent times. The move has impacted the volume growth of Nestle brands which decling by around 5% for the the 1QCY12. The company is now offering higher consumer promotions to halt the consistent drop in volumes , according to analysts.

Nestle hiked prices of its milk products by 30% over the past two years. Nestle hiked prices of Everyday dairy whitener by 43% between June 2010 and October 2011. It is now offering 6% off on an MRP of Rs330 and offering around 18% off on Nestle A+ milk on an MRP of Rs 57.

Nestle's 2011 annual report stated that the volume growth in milk products and nutrition category was 2.5%, 0.9% in beverages was 0.9% and 13.2% in prepared dishes while chocolates volumes declined by 1.5%.

The company has drawn US$157 mn from Nestle SA for five years under the ECB approval route to fund its capex plans. Interest cost for the quarter is Rs54 mn-out of this Rs15.4 mn is routed through the P&L and Rs38.6 mn through the balance sheet (added to carrying cost of fixed assets).

Rs237.4 mn is the forex benefit during the quarter due to INR depreciation-out of this Rs3.3 mn is routed through the P&L and Rs240.7 mn is reduced from the carrying cost of fixed assets according to a Kotak Mahindra report.

"The company is following an aggressive accounting policy on loans taken for expansion plans, in our view-(1) Nestle is capitalizing a certain portion of interest component as the loans are for capex.

While this is well within accounting standards, within the consumer goods industry, this appears to be an aggressive practice of capitalizing interest cost and not charging it off to P&L in its entirety and it has not hedged the outstanding ECB repayment of US$157 mn" the report stated.