NestleIndia_Firstcall_220311

7/29/2019 NestleIndia_Firstcall_220311

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SYNOPSIS

Nestl 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

robust growth of revenue isincreased by 23.41% Rs.16755.20

million.

Companys manufacturing unit has

expansion plans at Nanjangud,

samalkha and ponda on track.

Company has acquired land for new

plant at Tahliwal.

Net Sales and PAT of the company

are expected to grow at a CAGR of

18% and 19% over 2009 to 2012E

respectively.

Company had made domestic sales

of Rs.5901.0 cr.

Years Net sales EBITDA Net Profit EPS P/E

CY 10 62736.4 12739.3 8186.6 84.91 41.70

CY 11E 72146.8 14623.3 9424.2 97.74 36.22

CY 12E 83690.3 17206.1 11157.7 115.72 30.59

Stock Data:

Sector: FMCG

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 4199.40/2570.00

Volume (2 wk. Avg.) 9757.0

BSE Code 500790

Market Cap (Rs.In mn) 341365.3

Share Holding Pattern

1 Year Comparative Graph

Nestle India Ltd BSE SENSEX

C.M.P: Rs.3540.40Target Price: Rs.4001.00Date: March 19th 2011 BUY

Nestle India LtdResult Update: Q3 FY 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 3540.40 341365.3 84.91 41.70 24.38 485.00

ITC 167.80 1296700.3 6.13 27.37 9.25 1000.00

Dabur 96.70 168328.0 2.55 37.92 22.44 200.00

HUL 268.50 585952.9 10.62 25.28 22.68 650.00

Company Profile

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

company in India. Nestl India is a subsidiary of Nestl 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.

Nestl 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 Nestl Milkmaid, Nestl Everyday, Maggi

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

As per the market-wise position Nestl 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.


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Segments

Milk Products & Nutrition

Beverages

Prepared dishes & cooking Aids

Chocolates & Confectionery

Investment Highlights

Q4 CY10 Results Update

FMCG major Nestle India has posted 80.13% rise of net profit in its standalone

earnings for the quarter ended Dec 2010. During the quarter Net profit is increased

to Rs 2034.00 million for the quarter ended Dec. 31, 2010 as compared to Rs1129.20 million for the quarter ended Dec. 31, 2009. Net sales for the quarter is

surged by 23.41% to Rs.16755.20 million from Rs.13576.60 million as compared to

same quarter corresponding year. Total income has increased by 23.67% from

Rs.13623.50 million for the quarter ended Dec. 31, 2009 to Rs 16848.60 million for

the quarter ended Dec. 31, 2010. The EPS of the company is stood at Rs.21.10for

the quarter ended Dec 31, 2010.

Quarterly Results - Standalone (Rs in mn)

As At Dec-10 Dec-09 %change

Net sales 16755.20 13576.60 23.41

PAT 2034.00 1129.20 80.13

Basic EPS 21.10 11.71 80.13


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Break up of Expenditure

CY10 performance

Nestle India has disclosed a decent number of Net Profit for the year ended

December 31 2010. Net profit after tax of Rs 8186.60 million for the year ended

December 31, 2010 whereas the same was at Rs 6550.00 million for the year

ended December 31, 2009 with growth of 25%. Net sales for the year are rose by

22% to Rs 62736.40 million, while total income for the year rose 22% to Rs

62974.00 million, when compared with last year. The company EPS is stood at

Rs.84.91 with a growth of 25% over the last year.

Recommendation of dividend

Nestle India Ltd has recommended a final dividend for the year 2010 of Rs. 12.50

per equity share (nominal value Rs.10/- per equity share). In addition to the two

interim dividends for 2010, of Rs.9.00 & Rs.27.00 per equity share paid in May

2010 and November 2010 respectively.


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Increase of borrowing limits

Nestle India Ltd has Proposed for approval of the shareholders, increase in the

borrowing limits of the Company upto a maximum of Rs. 2500 Crores, in

aggregate; and taken on record the in-principle approval received from Reserve

Bank of India for availing External Commercial Borrowings of upto USD 450

Million over a period of time, in tranches, from the foreign equity holders for the

funding of modernization / expansion of existing new projects and sourcing of

capital goods.


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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) CY09 CY10 CY11E CY12E

Description 12m 12m 12m 12m

Net Sales 51499.90 62736.40 72146.86 83690.36

Other Income 171.80 237.60 266.11 300.71

Total Income 51671.70 62974.00 72412.97 83991.06

Expenditure -41219.80 -50234.70 -57789.63 -66784.91

Operating Profit 10451.90 12739.30 14623.34 17206.16

Interest -169.50 -10.70 -11.77 -12.71

Gross profit 10282.40 12728.60 14611.57 17193.45

Deprecation -1112.70 -1277.50 -1430.80 -1588.19

Profit Before Tax 9169.70 11451.10 13180.77 15605.26

Tax -2619.70 -3264.50 -3756.52 -4447.50

Profit After Tax 6550.00 8186.60 9424.25 11157.76

Equity capital 964.20 964.20 964.20 964.20

Reserves 4848.50 7590.00 17014.25 28172.01

Face value 10.00 10.00 10.00 10.00

EPS 67.93 84.91 97.74 115.72


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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11E

Description 3m 3m 3m 3m

Net sales 14713.00 16414.00 16755.20 18263.17

Other income 55.30 54.00 93.40 100.87

Total Income 14768.30 16468.00 16848.60 18364.04

Expenditure -11794.10 -13108.20 -13594.70 -14519.22

Operating profit 2974.20 3359.80 3253.90 3844.82

Interest -3.70 -28.50 -1.00 -1.10

Gross profit 2970.50 3331.30 3252.90 3843.72

Deprecation -303.90 -305.80 -357.90 -375.80

Profit Before Tax 2666.60 3025.50 2895.00 3467.93

Tax -718.20 -839.90 -861.00 -988.36

Profit After Tax 1948.40 2185.60 2034.00 2479.57

Equity capital 964.20 964.20 964.20 964.20

Face value 10.00 10.00 10.00 10.00

EPS 20.21 22.67 21.10 25.72


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Key Ratios

Particulars CY09 CY10 CY11E CY12E

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

EBITDA Margin (%) 20.29% 20.31% 20.27% 20.56%

PBT Margin (%) 17.81% 18.25% 18.27% 18.65%

PAT Margin (%) 12.72% 13.05% 13.06% 13.33%

P/E Ratio (x) 52.12 41.7 36.22 30.59

ROE (%) 112.68% 95.70% 52.42% 38.30%

ROCE (%) 198.95% 163.86% 89.30% 64.51%

EV/EBITDA (x) 32.66 26.8 23.34 19.84

Book Value (Rs.) 60.29 88.72 186.46 302.18

P/BV 58.73 39.91 18.99 11.72


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Charts:


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Outlook and Conclusion

At the current market price of Rs.3540.40, the stock is trading at 36.22 x

CY11E and 30.59 x CY12E respectively.

Earning per share (EPS) of the company for the earnings for CY11E and CY12E

is seen at Rs.97.74 and Rs.115.72 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 18% and

19% over 2009 to 2012E respectively.

On the basis of EV/EBITDA, the stock trades at 23.34 x for CY11E and 19.84 x

for CY12E.

Price to Book Value of the stock is expected to be at 18.99 x and 11.72 x

respectively for CY11E and CY12E.

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.4001.00 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


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FMCG companies maintain intense distribution network. Companies spend a large

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

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.85,000 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.

The Rs.85,000 crore FMCG market in India is growing at a fast pace despite of the

economic downtrend. The increasing disposable income and improved standard ofliving 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.

According to a FICCI-Technopak report, India's FMCG sector is poised to reach US$

43 billion by 2013 and US$ 74 billion by 2018. The report states that implementation

of the proposed goods and services tax (GST) and the opening of foreign direct

investment (FDI) are expected to fuel growth further and raise the industry's size toUS$ 47 billion by 2013 and US$ 95 billion by 2018.

According to a study by research firm The Nielson Company, the fast moving

consumer goods market (FMCG) in rural India is tipped to touch US$100 billion by

2025 on the back of "unrelenting" demand driven by rising income levels. According to

the study, rural India accounts for more than half of sales in some of the largest

FMCG categories.

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.


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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.

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$ 50.49million 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 companys umbrella brand.

FieldFresh Foods , joint venture of the Bharti Enterprises and Del Monte PacificLtd, has inaugurated their Research and Development and manufacturing

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


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Agri solutions provider Buhler India plans to invest US$ 22.55 million in anintegrated 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 inIndia in the next two years.

Atlanta-based Coca Cola Company plans to invest up to US$ 120.75 million toset up a new bottling plant in Karnataka, India

________________ ____ _________________________

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitationfor 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 othersources 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 its

affiliates shall not be in any way responsible for any loss or damage that may arise to anyperson 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 thebasis for an investment decision.


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Firstcall India Equity Research: Email [email protected]

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

B. Prathap IT

D. Ashakirankumar Automobile

A. Rajesh Babu FMCGH.Lavanya Oil & Gas

A.Prathibha Diversified

Dheeraj Bhatia Diversified

Manoj kotian Diversified

Nimesh Gada Diversified

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Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

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restructuring-Capital and Debt, Turnkey Corporate Revival Planning &

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Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071

Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089

E-mail: [email protected]

www.firstcallindiaequity.com

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