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MacVisit – Nestle India
Bringing global products to India
�� We recently interacted with the senior management of Nestlé India (NEST IN,
Not Rated). Nestle is a play on growing consumption of the convenience and
nutritional food products in India. Strong brands and presence in
underpenetrated categories have helped Nestle double its sales and profit in
the last four years. Management believes Nestle’s capacity expansion is on
track to meet fast rising demand.
Marquee brands in underpenetrated categories
�� Nestle’s leading brands with dominant market share in categories such as baby
food (Cerelac, Lactogen, ~85% market share), instant noodles (Maggi, ~70%
share), instant coffee (Nescafe, 50% share), milk powder and chocolate has
delivered strong growth in the past. As penetration of these categories is still
low (Coffee -23%, Chocolate -28%, milk powder -8%) and consumer appetite
for convenience food is growing, penetration led growth should benefit Nestle.
Aims to double sales and profit in next 3–4 years
�� Management is confident of doubling its sales and profit in the next three to
four years on the back of strong demand in premium and popular products
along with focus on new launches and distribution reach. In CY10, Nestle
reported 22.9% YoY domestic sales growth aided by prepared dishes and
cooking aids (↑29.2%) chocolate and confectionary (↑25.7%) and milk
products and nutrition (↑20.1%).
Margin to be maintained at ~17–19% despite cost pressure
�� Management, despite being cautious on cost, is confident of maintaining its
operating margin band (17–19%) despite cost pressure in key commodities
such as coffee, palm oil and milk through better product mix, calibrated price
hikes and operating leverage. During CY10, Nestle reported EBIT margin of
18.2% (↑30bp) despite raw material cost pressure.
Focus on new launches and distribution
�� New launches are planned in popularly priced point, nutritional, out of home
and premium categories. Also, Nestle enhanced its distribution reach by
adding 464,000 new points of sales in CY10 and aims to expand its reach
further in tier II, III and IV cities. Strong demand of premium products in
smaller cities despite high food inflation has strengthened its distribution
expansion strategy.
Expansions on track, alleviates growth concern
�� Nestle’s expansion plans are progressing well and it has received US$450m
debt funding from its parent for these expansions. It expects to complete
Nanjangud (Noodle, trial run), Bicholim (Pasta, first line started) and Ponda
(chocolate) expansion in CY11, and Samalkha (nutritional) and Tahliwal
(Chocolate and noodles) expansion in CY12. In addition, the company
believes that debottlenecking and operational efficiency at existing facilities
will help meet near-term demand growth.
Premium valuation supported by superior growth
�� Nestlé is present in very high growth categories, where penetration levels are
very low and competition is modest. Nestlé has consistently delivered ROEs
and ROICs of over ~100% and 60%, respectively. Nestlé is trading at 37x
CY11E and 30x CY12E PER, based on Bloomberg consensus estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MacVisit – Nestle India
Bringing global products to India
�� We recently interacted with the senior management of Nestlé India (NEST IN,
Not Rated). Nestle is a play on growing consumption of the convenience and
nutritional food products in India. Strong brands and presence in
underpenetrated categories have helped Nestle double its sales and profit in
the last four years. Management believes Nestle’s capacity expansion is on
track to meet fast rising demand.
Marquee brands in underpenetrated categories
�� Nestle’s leading brands with dominant market share in categories such as baby
food (Cerelac, Lactogen, ~85% market share), instant noodles (Maggi, ~70%
share), instant coffee (Nescafe, 50% share), milk powder and chocolate has
delivered strong growth in the past. As penetration of these categories is still
low (Coffee -23%, Chocolate -28%, milk powder -8%) and consumer appetite
for convenience food is growing, penetration led growth should benefit Nestle.
Aims to double sales and profit in next 3–4 years
�� Management is confident of doubling its sales and profit in the next three to
four years on the back of strong demand in premium and popular products
along with focus on new launches and distribution reach. In CY10, Nestle
reported 22.9% YoY domestic sales growth aided by prepared dishes and
cooking aids (↑29.2%) chocolate and confectionary (↑25.7%) and milk
products and nutrition (↑20.1%).
Margin to be maintained at ~17–19% despite cost pressure
�� Management, despite being cautious on cost, is confident of maintaining its
operating margin band (17–19%) despite cost pressure in key commodities
such as coffee, palm oil and milk through better product mix, calibrated price
hikes and operating leverage. During CY10, Nestle reported EBIT margin of
18.2% (↑30bp) despite raw material cost pressure.
Focus on new launches and distribution
�� New launches are planned in popularly priced point, nutritional, out of home
and premium categories. Also, Nestle enhanced its distribution reach by
adding 464,000 new points of sales in CY10 and aims to expand its reach
further in tier II, III and IV cities. Strong demand of premium products in
smaller cities despite high food inflation has strengthened its distribution
expansion strategy.
Expansions on track, alleviates growth concern
�� Nestle’s expansion plans are progressing well and it has received US$450m
debt funding from its parent for these expansions. It expects to complete
Nanjangud (Noodle, trial run), Bicholim (Pasta, first line started) and Ponda
(chocolate) expansion in CY11, and Samalkha (nutritional) and Tahliwal
(Chocolate and noodles) expansion in CY12. In addition, the company
believes that debottlenecking and operational efficiency at existing facilities
will help meet near-term demand growth.
Premium valuation supported by superior growth
�� Nestlé is present in very high growth categories, where penetration levels are
very low and competition is modest. Nestlé has consistently delivered ROEs
and ROICs of over ~100% and 60%, respectively. Nestlé is trading at 37x
CY11E and 30x CY12E PER, based on Bloomberg consensus estimates.
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