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Nestlé India (NEST.BO, Rs3216, OW, PT Rs4010)
Investment Thesis: Why OW
• Packaged foods (PF) category in India is at a nascent
stage. In our view, the category has the potential to grow
nearly 1000bp ahead of disposable growth in India
• Company is well placed to capitalize on the inflection point
in packaged foods consumption in India.
• Backed by international R&D in food technology from
parent company, which gives big competitive advantage
• Strong brands built over the years with great consumer
insights.
• Input cost inflation could constrain earnings in short term.
Best Long-Term Growth Potential Among FMCG Players
We believe that packaged foods in India are nearing an
inflection point and are likely to deliver around 1,000 bps
growth ahead of disposable income growth for the next 10
years. Nestlé is well placed to capitalize on this growth
potential, in our view, given its strong brand equity,
differentiated products, wide global experience, and strong
local knowledge. Although Nestlé trades at a premium
multiple to the group, we believe that its premium is justified
considering its strong long-term growth potential and great
execution track record. Recent stock underperformance
provides a good entry opportunity in this stock, we believe.
(Nestlé is down over 16% over the past one month, versus
9% for the Sensex).
Investment Positives
�� High growth potential in the industry it operates
�� Strong brand and global R&D backing
�� Strong efficient management team
Investment Concerns
�� Dependent on volatile agri commodities for inputs
�� Growth potential of the industry restricted by consumer
affordability
�� Potential increase in competitive activity
Nestle emerges as the best company to play the potential
growth in the PF space in India, in our view. It has the requisite
products, experience, and brands to capitalize on this
opportunity. Increased proliferation of modern trade is likely to
catalyze acceleration in growth, in our view. Pantaloon, the
largest modern format retailer in India, expects food to
contribute over 50% to overall sales in the next three to four
years, up from the current ~35%.
Investment Thesis
• We believe that packaged foods in
India is at an inflection point and is
likely to deliver around 1,000 bps
growth ahead of disposable income
growth for the next 10 years.
• Nestlé is well placed to capitalize on
this growth potential.
• Strong brands built over the years
with great consumer insights.
Key Value Drivers
• Acceleration in introduction of new
products within the nascent packaged
foods industry
• Managing medium-term cost
pressures and margins on new
products.
• Operating leverage driven by pricing
power and robust top-line growth
Potential Catalysts
• Softening/hardening of key input costs
in the near term.
• Success in new product launches with
innovation and renovation.
• Rise/fall in competitive pressures from
small unorganized players.
Key Downside Risks
• A slowdown in market conditions
leading to slower-than-expected
growth acceleration in the packaged
foods space.
• Sharp increase in input prices leading
to volume pressure.
• Inability to expand product offering.
Key Upside Risks
• Acceleration in rural-led growth for
packaged foods.
• Sharp decline in input costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestlé India (NEST.BO, Rs3216, OW, PT Rs4010)
Investment Thesis: Why OW
• Packaged foods (PF) category in India is at a nascent
stage. In our view, the category has the potential to grow
nearly 1000bp ahead of disposable growth in India
• Company is well placed to capitalize on the inflection point
in packaged foods consumption in India.
• Backed by international R&D in food technology from
parent company, which gives big competitive advantage
• Strong brands built over the years with great consumer
insights.
• Input cost inflation could constrain earnings in short term.
Best Long-Term Growth Potential Among FMCG Players
We believe that packaged foods in India are nearing an
inflection point and are likely to deliver around 1,000 bps
growth ahead of disposable income growth for the next 10
years. Nestlé is well placed to capitalize on this growth
potential, in our view, given its strong brand equity,
differentiated products, wide global experience, and strong
local knowledge. Although Nestlé trades at a premium
multiple to the group, we believe that its premium is justified
considering its strong long-term growth potential and great
execution track record. Recent stock underperformance
provides a good entry opportunity in this stock, we believe.
(Nestlé is down over 16% over the past one month, versus
9% for the Sensex).
Investment Positives
�� High growth potential in the industry it operates
�� Strong brand and global R&D backing
�� Strong efficient management team
Investment Concerns
�� Dependent on volatile agri commodities for inputs
�� Growth potential of the industry restricted by consumer
affordability
�� Potential increase in competitive activity
Nestle emerges as the best company to play the potential
growth in the PF space in India, in our view. It has the requisite
products, experience, and brands to capitalize on this
opportunity. Increased proliferation of modern trade is likely to
catalyze acceleration in growth, in our view. Pantaloon, the
largest modern format retailer in India, expects food to
contribute over 50% to overall sales in the next three to four
years, up from the current ~35%.
Investment Thesis
• We believe that packaged foods in
India is at an inflection point and is
likely to deliver around 1,000 bps
growth ahead of disposable income
growth for the next 10 years.
• Nestlé is well placed to capitalize on
this growth potential.
• Strong brands built over the years
with great consumer insights.
Key Value Drivers
• Acceleration in introduction of new
products within the nascent packaged
foods industry
• Managing medium-term cost
pressures and margins on new
products.
• Operating leverage driven by pricing
power and robust top-line growth
Potential Catalysts
• Softening/hardening of key input costs
in the near term.
• Success in new product launches with
innovation and renovation.
• Rise/fall in competitive pressures from
small unorganized players.
Key Downside Risks
• A slowdown in market conditions
leading to slower-than-expected
growth acceleration in the packaged
foods space.
• Sharp increase in input prices leading
to volume pressure.
• Inability to expand product offering.
Key Upside Risks
• Acceleration in rural-led growth for
packaged foods.
• Sharp decline in input costs.
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