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SYNOPSIS

Nestlé India, one the biggest players

in FMCG segment, has a presence in

milk & nutrition, beverages, prepared

dishes & cooking aids & chocolate &

confectionery segments.

During the quarter ended, the

operating profit margin increased 48

bps to 17.79% from 17.31% for the

same period last year.

For the quarter domestic sales have

increased by 20.20% on account of

selling prices and volumes.

Nestle India Ltd has recommended a

final dividend for 2011 of Rs. 12.50

per equity shares.

Net Sales and PAT of the company

are expected to grow at a CAGR of

19% and 18% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

CY 11 75144.60 15463.70 9615.50 99.73 43.97

CY 12E 88670.63 18133.45 11409.26 118.33 37.06

CY 13E 104631.34 21372.61 13609.19 141.14 31.07

Stock Data:

Sector: FMCG

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 4549.00/3371.00

Volume (2 wk. Avg.) 7682

BSE Code 500790

Market Cap (Rs.In mn) 422801.70

Share Holding Pattern

1 Year Comparative Graph

Nestle India BSE SENSEX

C.M.P: Rs. 4385.00 Target Price: Rs. 4955.00 Date: Feb 25th, 2012 BUY

Nestle India Ltd Result Update: Q4 CY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Nestle India 4415.00 422801.70 99.73 44.27 33.42 485.00

ITC 203.00 1582276.00 7.47 27.18 9.96 445.00

Dabur 103.00 181994.10 2.59 39.77 16.53 115.00

HUL 385.80 838161.20 12.21 31.60 31.65 650.00

Investment Highlights

Q4 CY11 Results Update

Nestle India has posted a net profit of Rs 2308.30 million for the quarter ended

Dec. 31, 2011 as compared to Rs 2034.00 million for the quarter ended Dec. 31,

2010, registering an increase of 13.49%. Net sales has increased from Rs 16755.20

million for the quarter ended Dec. 31, 2010 to Rs 19627.00 million for the quarter

ended Dec. 31, 2011, registering an increase of 17.14%. Total income has surged

to Rs.19727.50 million for the quarter ended Dec 2011. The EPS of the company is

stood at Rs.23.94 for the quarter ended Dec 2011.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec -10 %change

Net sales 19627.00 16755.20 17.14

PAT 2308.30 2034.00 13.49

Basic EPS 23.94 21.10 13.49

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Break up of Expenditure

Recommendation of dividend

Nestle India Ltd has recommended a final dividend for 2011 of Rs. 12.50 per equity

shares, for approval of the shareholders.

Company Profile

Nestle has its presence in India for around nine decades, making it one of the oldest

company in India. Nestlé India is a subsidiary of Nestlé SA of Switzerland. The

company has its headquarters at Gurgaon near Delhi and has seven factories spread

all over India. It started its journey in India in 1912 by entering into the dairy

business.

Nestlé India, one the biggest players in FMCG segment, has a presence in milk &

nutrition, beverages, prepared dishes & cooking aids & chocolate & confectionery

segments. Nestle has created brands like Nestlé Milkmaid, Nestlé Everyday, Maggi

Noodles, Maggi Soups, Polo, Kit Kat, Nescafe & many more.

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As per the market-wise position Nestlé India stands first in instant noodles &

ketchups, second in healthy soups, No.1 in instant coffee, & No.2 in overall chocolate

category.

Nestle India continuously focuses on understanding changing lifestyles in India. This

helps it to foresee needs in hts product offerings. The company innovates new product

& renovates existing one providing high quality, safe food products at affordable

prices.

Segments

Milk Products & Nutrition

Beverages

Prepared dishes & cooking Aids

Chocolates & Confectionery

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) CY10 CY11 CY12E CY13E

Description 12m 12m 12m 12m

Net Sales 62736.40 75144.60 88670.63 104631.34

Other Income 237.60 272.50 310.65 341.72

Total Income 62974.00 75417.10 88981.28 104973.06

Expenditure -50234.70 -59953.40 -70847.83 -83600.44

Operating Profit 12739.30 15463.70 18133.45 21372.61

Interest -10.70 -51.10 -23.54 -24.72

Gross profit 12728.60 15412.60 18109.91 21347.90

Depreciation -1277.50 -1533.30 -1717.30 -1906.20

Profit Before Tax 11451.10 13879.30 16392.61 19441.70

Tax -3264.50 -4263.80 -4983.35 -5832.51

Profit After Tax 8186.60 9615.50 11409.26 13609.19

Equity capital 964.20 964.20 964.20 964.20

Reserves 7590.00 11775.30 23184.56 36793.75

Face value 10.00 10.00 10.00 10.00

EPS 84.91 99.73 118.33 141.14

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 17680.60 19692.70 19627.00 20804.62

Other income 29.70 59.20 100.50 70.45

Total Income 17710.30 19751.90 19727.50 20875.07

Expenditure -14243.60 -15589.70 -15792.50 -16560.48

Operating profit 3466.70 4162.20 3935.00 4314.59

Interest -5.80 -23.40 -33.10 -2.60

Gross profit 3460.90 4138.80 3901.90 4311.99

Depreciation -366.70 -393.50 -446.00 -472.76

Profit Before Tax 3094.20 3745.30 3455.90 3839.23

Tax -955.90 -1133.80 -1147.60 -1170.97

Profit After Tax 2138.30 2611.50 2308.30 2668.27

Equity capital 964.20 964.20 964.20 964.20

Face value 10.00 10.00 10.00 10.00

EPS 22.18 27.08 23.94 27.67

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Key Ratios

Particulars CY10 CY11 CY12E CY13E

No. of Shares(In Million) 96.42 96.42 96.42 96.42

EBITDA Margin (%) 20.31% 20.58% 20.45% 20.43%

PBT Margin (%) 18.25% 18.47% 18.49% 18.58%

PAT Margin (%) 13.05% 12.80% 12.87% 13.01%

P/E Ratio (x) 51.65 43.97 37.06 31.07

ROE (%) 95.70% 75.48% 47.25% 36.04%

ROCE (%) 163.86% 133.42% 82.20% 61.65%

Debt Equity Ratio 0.00 0.00 0.00 0.00

EV/EBITDA (x) 33.19 27.34 23.32 19.78

Book Value (Rs.) 88.72 132.13 250.45 391.60

P/BV 49.43 33.19 17.51 11.20

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Charts:

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Outlook and Conclusion

At the current market price of Rs.4385.00, the stock is trading at 37.06 x

CY12E and 31.07 x CY13E respectively.

Earning per share (EPS) of the company for the earnings for CY12E and CY13E

is seen at Rs.118.33 and Rs.141.14 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 19% and

18% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 23.32 x for CY12E and 19.78 x

for CY13E.

Price to Book Value of the stock is expected to be at 17.51 x and 11.20 x

respectively for CY12E and CY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.4955.00 for Medium to Long term investment.

Industry Overview

Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer

packaged goods. Items in this category include all consumables (other than

groceries/pulses) people buy at regular intervals. The most common in the list are

toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,

packaged foodstuff, household accessories and extends to certain electronic goods.

These items are meant for daily of frequent consumption and have a high return.

A major portion of the monthly budget of each household is reserved for FMCG

products. The volume of money circulated in the economy against FMCG products is

very high, as the number of products the consumer use is very high. Competition in

the FMCG sector is very high resulting in high pressure on margins

FMCG companies maintain intense distribution network. Companies spend a large

portion of their budget on maintaining distribution networks. New entrants who wish

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to bring their products in the national level need to invest huge sums of money on

promoting brands. Manufacturing can be outsourced. A recent phenomenon in the

sector was entry of multinationals and cheaper imports. Also the market is more

pressurized with presence of local players in rural areas and state brands

Scope of the Sector

The Indian FMCG sector with a market size of Rs.1,35,000 crore is the fourth largest

sector in the economy. A well-established distribution network, intense competition

between the organized and unorganized segments characterizes the sector.

FMCG market in India is growing at a fast pace despite of the economic downtrend.

The increasing disposable income and improved standard of living in most tier II and

tire III cities are spearheading the FMCG growth across the nation. The changing

profile and mind set of the consumers has shifted the thought to “Value for Money”

from “Money for Value”.

At present, rural consumers spend about US$ 9 billion per annum on FMCG items

and product categories such as instant noodles, deodorant and fabric, with the pace of

consumption growing much faster than urban areas, as per the findings.

“The industry will witness a spate of acquisitions & mergers in the 2010. There will be

a renewed focus on rural consumers too,” by an analyst based in Mumbai.

The fast moving consumer goods (FMCG) sector is expected to grow 13 per cent during

FY 2010-11 on the back of strong economic growth, a good monsoon and subsequent

rise in rural income, according to an industry body.

Over the years companies like HUL, ITC and Dabur have improved performance with

innovation and strong distribution channels. Their key categories have strengthened

their presence and outperformed peers in the FMCG sector. On the contrary, Colgate

Palmolive and Britannia Industries are strong in single product category i.e. tooth

pastes and Biscuits. In addition companies have been successful in reviving their

presence in the semi-urban and rural markets.

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Major investments

Some of the major investments in the industry are:

• Chennai-based FMCG company CavinKare is planning to invest around US$

109.50 million over the next two years in various expansion plans, including a

greenfield facility for namkeen at Thane, cool drinks in the North and others.

• Nestle, the fast moving consumer goods major, plans to invest US$ 50.49

million to set up its first research and development (R&D) centre in India at

Manesar in adjoining Gurgaon district. The facility will be made operational by

July 2012.

• Packaged consumer goods company GlaxoSmithKline Consumer Healthcare

(GSKCH) plans to invest over US$ 64.87 million on repositioning milk food

drink Horlicks as the company’s umbrella brand.

• FieldFresh Foods , joint venture of the Bharti Enterprises and Del Monte Pacific

Ltd, has inaugurated their Research and Development and manufacturing

facility in Hosur, Tamil Nadu at an investment of US$ 25.93 million.

• Agri solutions provider Buhler India plans to invest US$ 22.55 million in an

integrated manufacturing unit and other expansion projects in the next four

years, in line with its plans to achieve US$ 225.49 million turnover by 2014.

• Soft drinks and snacks major Pepsico is planning to invest US$ 500 million in

India in the next two years.

• Atlanta-based Coca Cola Company plans to invest up to US$ 120.75 million to

set up a new bottling plant in Karnataka, India

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________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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Firstcall India Equity Research: Email – info@firstcallindia.com

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