The Hindu Business Line : Block deals boost Nestle

DESPITE a worse than expected second quarter results, the stock of Nestle India Ltd showed signs of strength on Thursday with the stock price ending in positive territory.

Brokers said the counter witnessed two block deals, the first being for around 50,000 shares and the second 25,000 shares on the BSE.

The buzz on the street was that it was a deal undertaken by SSB (Solomon, Smith Barney). There was also speculation that the promoters were active at the counter.

Interestingly the stock, which was ruling at around Rs 560 levels on July 1, has lost by around 8 per cent to its current levels of Rs 520 on the BSE. The stock is not listed on the NSE. Market sources maintain that fundamental deterioration coupled with poor liquidity were reasons for the stock to come of its high.

Touting it as one of the most expensive stock in the sector on most valuation parameters, analysts have been talking themselves hoarse of a dull earnings growth. The reason being that the company has moved from being one of the fastest growing companies in the sector, with the year 2004 having brought about a reversal in fortune. About 40 per cent of the company's businesses have either reportedly de-grown or have slowed down. With the Q2 results being far below expectations, the disenchantment with the stock is expected to continue.

While the sharp surge in price did come as a surprise, there is a growing perception in the market that the company in the future may come out with an open offer and thereafter delist from the bourses. According to a Merrill Lynch report, the slowdown in domestic sales growth was on account of supply shortage in milk, structural issues in Maggi noodles and competitive issues in chocolates, sauces and Sunrise coffee.

"Going forward we expect milk price should begin to come off and hence milk product sales should also improve. However, we remain concerned about the structural and competitive issues in Maggi, chocolates and Sunrise. Hence we believe that the earnings outlook will be dull for the next few quarters," said the report.

An analyst tracking the company said the company has undertaken pipeline correction this quarter. "After every correction, typically, the company has hiked product prices. There is reason to believe that one could see a price hike in Cerelac," speculated a market source.

The stock ended the day at Rs 519.90 up 2.15 per cent with around 1.19 lakh shares traded on the BSE.