Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We recently met the Nestle management to gain an understanding of its proposed
capex plan. Following are the key takeaways of our interaction:
All segments continue to perform well;volume robust despite price hikes
Smaller towns have grown faster than the overall growth rate. Prepared dishes
(value growth 29.2% Y-o-Y) and chocolate (value growth 25.7% Y-o-Y) grew
faster than other segments in CY10. Nestle succeeded in introducing chocolates
at INR 7 and INR 14, which have been well received and has repeated the same
strategy by launching variants of noodles at INR 12. The company’s strategy of
‘baking a larger cake’ is to expand categories and not just focus on market
share. This is evident from huge success of pasta and new variants of noodles.
Set for higher capex cycle; CY11 capacity is largely sufficient
Nestle is planning to significantly step up capex (INR 20 bn) over next 2-3 years.
The company is planning capex for brownfield projects at Karnataka (INR 3.6 bn)
for noodles, Goa (INR 5 bn) for expansion in confectionary, Punjab (INR 2 bn)
for chocolates, and Haryana (INR 6 bn) for greenfield expansion, Himachal
Pradesh (INR 4-5 bn) for chocolate and noodles greenfield project.
Capex funding: Low interest debt from parent augurs well
Nestle India has managed to bag RBI’s approval to raise USD 450 mn via ECB
from parent at a low rate for capex. This, and two R&D centres in India, indicate
the parent’s interest in India (India is more profitable than China).
Managing raw material costs a challenge; has good pricing power
Sugar, wheat, and milk costs are largely stable while coffee and palm oil prices
are concern areas. Nestlé’s commodity basket price index has catapulted from
112 in CY09 to 123 in CY10. However, with pricing power at its disposal, it
managed to expand margin in Q4FY10 (19.7%) vis-à-vis Q4FY09 (16.9%).
Outlook and valuations: Positive; maintain ‘HOLD’
We are enthused by Nestlé’s plan for higher capex to meet the growing demand
for its products and launch new products. The company has posted buoyant
sales growth consistently in spite of high food inflation and Nestle is the best
play on packaged food. We maintain ‘HOLD/Sector Underperformer’.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We recently met the Nestle management to gain an understanding of its proposed
capex plan. Following are the key takeaways of our interaction:
All segments continue to perform well;volume robust despite price hikes
Smaller towns have grown faster than the overall growth rate. Prepared dishes
(value growth 29.2% Y-o-Y) and chocolate (value growth 25.7% Y-o-Y) grew
faster than other segments in CY10. Nestle succeeded in introducing chocolates
at INR 7 and INR 14, which have been well received and has repeated the same
strategy by launching variants of noodles at INR 12. The company’s strategy of
‘baking a larger cake’ is to expand categories and not just focus on market
share. This is evident from huge success of pasta and new variants of noodles.
Set for higher capex cycle; CY11 capacity is largely sufficient
Nestle is planning to significantly step up capex (INR 20 bn) over next 2-3 years.
The company is planning capex for brownfield projects at Karnataka (INR 3.6 bn)
for noodles, Goa (INR 5 bn) for expansion in confectionary, Punjab (INR 2 bn)
for chocolates, and Haryana (INR 6 bn) for greenfield expansion, Himachal
Pradesh (INR 4-5 bn) for chocolate and noodles greenfield project.
Capex funding: Low interest debt from parent augurs well
Nestle India has managed to bag RBI’s approval to raise USD 450 mn via ECB
from parent at a low rate for capex. This, and two R&D centres in India, indicate
the parent’s interest in India (India is more profitable than China).
Managing raw material costs a challenge; has good pricing power
Sugar, wheat, and milk costs are largely stable while coffee and palm oil prices
are concern areas. Nestlé’s commodity basket price index has catapulted from
112 in CY09 to 123 in CY10. However, with pricing power at its disposal, it
managed to expand margin in Q4FY10 (19.7%) vis-à-vis Q4FY09 (16.9%).
Outlook and valuations: Positive; maintain ‘HOLD’
We are enthused by Nestlé’s plan for higher capex to meet the growing demand
for its products and launch new products. The company has posted buoyant
sales growth consistently in spite of high food inflation and Nestle is the best
play on packaged food. We maintain ‘HOLD/Sector Underperformer’.
No comments:
Post a Comment