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Nestle India
Analyst meet update
Nestle management highlighted near-term head winds on margins due to rising
material costs, corporate tax rates and adverse budget implications. It is
witnessing strong growth from smaller cities and towns, and hence is preparing
itself for higher growth post 2012 when new expansions go on stream.
Management highlighted it is facing a challenging year ahead
! The management's key concern has been on the rising raw material costs through 2010, and
a further acceleration in January and February 2011. It indicated that its index of raw material,
which rose by 12% in 2008, remained stable in 2009, before rising by 10% in 2010. There has
very sharp upward movement in Q1 2011 in raw materials like coffee, palm oil and the
volatality in the prices of all key materials is a concern. However, there has been a correction
in prices of most key raw materials from recent highs in March 2011. The management also
indicated that it has taken some good buying decisions in late 2010, and early 2011 which
should help it to manage costs in the near term. Besides, the above, they indicated the recent
Union Budget, which raised excise duty and service tax on certain items, will increase Nestle
India's excise 50bps on net sales, while, the tax cuts (surcharge) would reduce burden by
10bps.
Nestle India is making good progress in its capacity expansions
! NI has embarked on a major capital expenditure programme across all its manufacturing
plants to increase capacities. At its Mooga plant it is de-bottlenecking its capacities, at
Samalka it is doubling its infant nutrition products capacity, at its Goa plants it is raising
capacity of noodles and soups, at Ponda Plant it is raising its chocolates and confectionery
manufacturing capacities, at Nangangud Plant it is raising its noodles manufacturing capacity,
and in Pantnagar it is investing in pasta manufacturing. While, the management did not
disclose its overall CAPEX expenditure, it indicated that $450mn of ECB is being raised from
Nestle SA mainly for these expenditure programmes. In most the above plants, its has
committed 60-85% of the estimated investment, and expects commissioning in end 2011 and
early 2012. This will fuel stronger volume growth in 2012 and beyond.
Growth opportunity and outlook remains robust.
! NI is now increasingly focusying on increasing its distribution points in smaller towns and
cities. In 2010, it has added 464,000 new points of sale. The management stated that in 2010,
while the company as whole, achieved 21.9% growth, the growth has lower than company
average in Tier 1 cities, while, it was very strong in tier 2-4 cities. NI has sustained a healthy
double digit growth for the last 16 quarters, and management remained extremly confident of
growth opportunties in the medium term and long term in India. Its " Nescafe" brand has seen
a good pick up in growth in the 2H 2011. As regards, the emerging competition in "noodles"
segment, management was critical on competitive strengths of some its competitors, and
stated that NI is very strongly positioned in this category selling around 1.5bn packs annually
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestle India
Analyst meet update
Nestle management highlighted near-term head winds on margins due to rising
material costs, corporate tax rates and adverse budget implications. It is
witnessing strong growth from smaller cities and towns, and hence is preparing
itself for higher growth post 2012 when new expansions go on stream.
Management highlighted it is facing a challenging year ahead
! The management's key concern has been on the rising raw material costs through 2010, and
a further acceleration in January and February 2011. It indicated that its index of raw material,
which rose by 12% in 2008, remained stable in 2009, before rising by 10% in 2010. There has
very sharp upward movement in Q1 2011 in raw materials like coffee, palm oil and the
volatality in the prices of all key materials is a concern. However, there has been a correction
in prices of most key raw materials from recent highs in March 2011. The management also
indicated that it has taken some good buying decisions in late 2010, and early 2011 which
should help it to manage costs in the near term. Besides, the above, they indicated the recent
Union Budget, which raised excise duty and service tax on certain items, will increase Nestle
India's excise 50bps on net sales, while, the tax cuts (surcharge) would reduce burden by
10bps.
Nestle India is making good progress in its capacity expansions
! NI has embarked on a major capital expenditure programme across all its manufacturing
plants to increase capacities. At its Mooga plant it is de-bottlenecking its capacities, at
Samalka it is doubling its infant nutrition products capacity, at its Goa plants it is raising
capacity of noodles and soups, at Ponda Plant it is raising its chocolates and confectionery
manufacturing capacities, at Nangangud Plant it is raising its noodles manufacturing capacity,
and in Pantnagar it is investing in pasta manufacturing. While, the management did not
disclose its overall CAPEX expenditure, it indicated that $450mn of ECB is being raised from
Nestle SA mainly for these expenditure programmes. In most the above plants, its has
committed 60-85% of the estimated investment, and expects commissioning in end 2011 and
early 2012. This will fuel stronger volume growth in 2012 and beyond.
Growth opportunity and outlook remains robust.
! NI is now increasingly focusying on increasing its distribution points in smaller towns and
cities. In 2010, it has added 464,000 new points of sale. The management stated that in 2010,
while the company as whole, achieved 21.9% growth, the growth has lower than company
average in Tier 1 cities, while, it was very strong in tier 2-4 cities. NI has sustained a healthy
double digit growth for the last 16 quarters, and management remained extremly confident of
growth opportunties in the medium term and long term in India. Its " Nescafe" brand has seen
a good pick up in growth in the 2H 2011. As regards, the emerging competition in "noodles"
segment, management was critical on competitive strengths of some its competitors, and
stated that NI is very strongly positioned in this category selling around 1.5bn packs annually
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