Nestlé India- Danone to enter baby foods market ::JPMorgan

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Nestlé India Limited Neutral
NEST.BO, NEST IN
Danone to enter baby foods market


 Danone to move into the India baby foods market. Danone (covered
by JPM analyst Polly Barclay) has signed an agreement with Wockhardt
Group to acquire its nutrition business and thus enter the baby nutrition
and medical nutrition markets in India. Under the agreement, Danone
will acquire Wockhardt’s nutrition business and brands as well as its
related industrial operations (located in Punjab) for ~€250 mn.
Wockhardt’s baby nutrition brands include Dexolac, Farex and
Nusobee, which together account for ~7% share of the India baby food
market, as per Euromonitor. In addition, the nutritional supplement brand
Protinex is likely to give Danone a strong foundation for developing its
medical nutrition business.
 Rationale for Danone’s acquisition. Danone is trying to enhance its
presence (both in terms of product categories and geographical reach) in
India. It started testing Indian waters with the launch of yoghurt (regular
and flavored) in Indian markets about a year back and is in the process of
scaling that up. This acquisition is likely to provide Danone with access
to a wider distribution network (chemists particularly).
 More competition for Nestlé long term? Nestlé India is the market
leader in the baby foods category in India with a share of over 75%.
Baby foods cannot be advertised in India (by regulation), which acts as a
significant entry barrier for a new brand. With the acquisition, Danone
has tried to leverage on Wockhardt’s existing brand franchise to expand
its product reach. Clearly this move will be keenly monitored to see any
incremental impact on Nestlé’s baby food brands over the medium term;
these brands have had a fairly stable market share over the past few
years.
 India baby foods market. The Indian baby foods market is estimated to
be ~Rs17.5bn (as per Euromonitor). Nestlé is the dominant player with
~75% share. In India, per capita consumption of baby foods is quite low
(refer Fig 3) which highlights potential for growth in this category.
Furthermore over 25mn children are born in India each year, making it
one of the fastest growing infant nutrition markets globally.
 Global infant nutrition market. The global infant nutrition market is
consolidated. The three largest players – Nestlé, Danone and Mead
Johnson – account for approximately half the market and the six largest
players – Nestlé, Danone, Mead Johnson, Abbot, Pfizer and Heinz –
account for roughly two-thirds of the market (ref. Fig 2). Asia Pacific is
the largest infant formula milk market by region accounting for 45%
of the global infant formula milk market.