Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Capex commitments imply strong growth prospects
Nestle India's entire capex is to be funded by a drawdown debt facility of
USD450m from Nestle SA. To put this in perspective, Nestle India's capital
employed is at present ~INR5bn. Demand and gross margins have been navigated
admirably over 2010. Operational cash flow over the past four years has doubled
from INR5.2bn in 2006 to INR10.4bn. The stock remains among our top picks
within the sector with a target price of INR4,200
Capex funding from Nestle SA of USD450m over two years
Nestle’s committed capex of INR7.7bn is relatively high vs comparative periods
over the past four years. The expansion of the noodle capacity in Nanjangud
(Karnataka), the doubling of infant baby food capacity in Samalkha, and the
expansion of chocolate lines in Goa are driving the capex. We have factored in
relatively lower asset turns for CY11 and CY12, incorporating capex of INR100bn
annually over each of the next two years. We have factored in debt of INR170bn
over the same period.
Category growth remains strong
Nestle’s volume growth in categories such as chocolates and Maggi noodles
remains impressive. Demand and gross margins have been navigated admirably
over 2010. Volume growth across categories remains healthy for 2010E: milk
(volume 7.6%, value 20.1%), beverages (13.2%, 11.2%), noodles (24.4%, 29.2%),
chocolates (21.2%, 25.7%).
Maintaining earnings and target price of INR4,200/shr
Our INR4,200 target price is driven by an FCFE, based on a CoE of 10.83%, beta
of 0.51, and 4.5% terminal growth. Our target price implies a P/E multiple of 31x
for CY12E. Major risks include price increases in milk solids, green coffee, wheat
and sugar.
Nestle analysts’ meeting: key
takeaways
Capex funding from Nestle SA of USD450m over two years
Nestle India's entire capex is to be funded by a drawdown debt facility of USD450m from
Nestle SA. This is at 'competitive' rates of interest, lower than the interest rate that it would
otherwise have had to pay in India. The facility will likely be used over two years. Just to put
this in perspective, Nestle India's capital employed is, at present, INR5bn.
The expansion of the noodle capacity in Nanjangud (Karnataka), the doubling of infant baby
food capacity in Samalkha, and the expansion of chocolate lines in Goa are the drivers of the
capex.
We have factored in relatively low asset turns for CY11 and CY12, incorporating capex of
INR100bn annually over each of the next two years. We have factored in debt of INR170bn
over the same period.
Category demand remains strong
Nestle’s volume growth in Maggi noodles and chocolates remains impressive. Demand and
gross margins have been navigated admirably over 2010. Volume growth across the
categories remains healthy for 2010E: milk (volume 7.6%, value 20.1%), beverages (13.2%,
11.2%), noodles (24.4%, 29.2%), chocolates (21.2%, 25.7%). In Figure 3 we provide actual
volume and revenue growth and our estimates for the company going forward.
We maintain Buy with a target price of INR4,200
We have calculated Nestle’s intrinsic value based on the FCF to Equity methodology. In
Figure 7 we show the detailed calculations used to arrive at our value.
Free Cash Flow to Equity
The key assumptions for our two stage FCFE methodology are:
• The standard estimated risk-free rate of 6.7% and market risk premium of 8.1%, which
we apply to all the Indian companies we cover, and a beta of 0.51 (Bloomberg), implying
a cost of equity of 10.83%; and
• Growth in the stable phase of 4.5% (the long-term growth rate of the number of
households in India).
Our FCFE analysis gives a target price of INR4,200/share (see Figure 7).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Capex commitments imply strong growth prospects
Nestle India's entire capex is to be funded by a drawdown debt facility of
USD450m from Nestle SA. To put this in perspective, Nestle India's capital
employed is at present ~INR5bn. Demand and gross margins have been navigated
admirably over 2010. Operational cash flow over the past four years has doubled
from INR5.2bn in 2006 to INR10.4bn. The stock remains among our top picks
within the sector with a target price of INR4,200
Capex funding from Nestle SA of USD450m over two years
Nestle’s committed capex of INR7.7bn is relatively high vs comparative periods
over the past four years. The expansion of the noodle capacity in Nanjangud
(Karnataka), the doubling of infant baby food capacity in Samalkha, and the
expansion of chocolate lines in Goa are driving the capex. We have factored in
relatively lower asset turns for CY11 and CY12, incorporating capex of INR100bn
annually over each of the next two years. We have factored in debt of INR170bn
over the same period.
Category growth remains strong
Nestle’s volume growth in categories such as chocolates and Maggi noodles
remains impressive. Demand and gross margins have been navigated admirably
over 2010. Volume growth across categories remains healthy for 2010E: milk
(volume 7.6%, value 20.1%), beverages (13.2%, 11.2%), noodles (24.4%, 29.2%),
chocolates (21.2%, 25.7%).
Maintaining earnings and target price of INR4,200/shr
Our INR4,200 target price is driven by an FCFE, based on a CoE of 10.83%, beta
of 0.51, and 4.5% terminal growth. Our target price implies a P/E multiple of 31x
for CY12E. Major risks include price increases in milk solids, green coffee, wheat
and sugar.
Nestle analysts’ meeting: key
takeaways
Capex funding from Nestle SA of USD450m over two years
Nestle India's entire capex is to be funded by a drawdown debt facility of USD450m from
Nestle SA. This is at 'competitive' rates of interest, lower than the interest rate that it would
otherwise have had to pay in India. The facility will likely be used over two years. Just to put
this in perspective, Nestle India's capital employed is, at present, INR5bn.
The expansion of the noodle capacity in Nanjangud (Karnataka), the doubling of infant baby
food capacity in Samalkha, and the expansion of chocolate lines in Goa are the drivers of the
capex.
We have factored in relatively low asset turns for CY11 and CY12, incorporating capex of
INR100bn annually over each of the next two years. We have factored in debt of INR170bn
over the same period.
Category demand remains strong
Nestle’s volume growth in Maggi noodles and chocolates remains impressive. Demand and
gross margins have been navigated admirably over 2010. Volume growth across the
categories remains healthy for 2010E: milk (volume 7.6%, value 20.1%), beverages (13.2%,
11.2%), noodles (24.4%, 29.2%), chocolates (21.2%, 25.7%). In Figure 3 we provide actual
volume and revenue growth and our estimates for the company going forward.
We maintain Buy with a target price of INR4,200
We have calculated Nestle’s intrinsic value based on the FCF to Equity methodology. In
Figure 7 we show the detailed calculations used to arrive at our value.
Free Cash Flow to Equity
The key assumptions for our two stage FCFE methodology are:
• The standard estimated risk-free rate of 6.7% and market risk premium of 8.1%, which
we apply to all the Indian companies we cover, and a beta of 0.51 (Bloomberg), implying
a cost of equity of 10.83%; and
• Growth in the stable phase of 4.5% (the long-term growth rate of the number of
households in India).
Our FCFE analysis gives a target price of INR4,200/share (see Figure 7).
No comments:
Post a Comment