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UBS Investment Research
Nestle India Ltd.
Best exposure to Indian food consumption
[ EXTRACT]
Tale of two halves
We expect commodity cost pressures to keep margins under pressure in H1 FY12,
but think declining prices of cocoa and coffee will benefit Nestle India (Nestle) in
H2 FY12 and lead to margin improvement.
Highest ROE among companies under coverage
Nestle has the highest ROE in our consumer coverage universe, in part because it
has access to the parent company’s nutritional expertise (R&D) and food
technology. Its margins have been high as Nestle sells high quality products at a
premium to competitive products in the same categories. We expect ROE to
improve from FY11 levels in FY12 and FY13.
Fundamentals intact
We believe Nestle’s strategy will help the company drive growth across all
segments. Nestle is focusing on: 1) catering to the lower end of the F&B segment;
and 2) increasing product offerings across the mid and premium segments. The
company is expanding capacity to support its growth plans. We believe the
capacity expansions reflect its bullish plans in India’s packaged food market.
Valuation: maintain Neutral rating and price target of Rs4,750.00
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a beta of 0.41.
Nestle India Ltd.
Nestle is a 65%-owned subsidiary of Nestle SA, Switzerland. The company is
the market leader in its key product categories of infant nutrition, coffee,
noodles, and chocolate. The company's diversified product portfolio is sold
primarily in urban markets to middle- and upper-income households. The
company is increasing distribution reach into small cities, driving growth for the
company. In the domestic market, the company has been aggressively launching
new products to expand its consumer base. The company is diversifying its
export business to reduce dependence on Russia.
Statement of Risk
We believe the key risk to our earnings forecast and valuation is a slowdown in
the consumer market, which, we believe could affect earnings and valuations in
the sector. In a high-raw-material-cost environment, sluggish sales could also
affect earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Nestle India Ltd.
Best exposure to Indian food consumption
[ EXTRACT]
Tale of two halves
We expect commodity cost pressures to keep margins under pressure in H1 FY12,
but think declining prices of cocoa and coffee will benefit Nestle India (Nestle) in
H2 FY12 and lead to margin improvement.
Highest ROE among companies under coverage
Nestle has the highest ROE in our consumer coverage universe, in part because it
has access to the parent company’s nutritional expertise (R&D) and food
technology. Its margins have been high as Nestle sells high quality products at a
premium to competitive products in the same categories. We expect ROE to
improve from FY11 levels in FY12 and FY13.
Fundamentals intact
We believe Nestle’s strategy will help the company drive growth across all
segments. Nestle is focusing on: 1) catering to the lower end of the F&B segment;
and 2) increasing product offerings across the mid and premium segments. The
company is expanding capacity to support its growth plans. We believe the
capacity expansions reflect its bullish plans in India’s packaged food market.
Valuation: maintain Neutral rating and price target of Rs4,750.00
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a beta of 0.41.
Nestle India Ltd.
Nestle is a 65%-owned subsidiary of Nestle SA, Switzerland. The company is
the market leader in its key product categories of infant nutrition, coffee,
noodles, and chocolate. The company's diversified product portfolio is sold
primarily in urban markets to middle- and upper-income households. The
company is increasing distribution reach into small cities, driving growth for the
company. In the domestic market, the company has been aggressively launching
new products to expand its consumer base. The company is diversifying its
export business to reduce dependence on Russia.
Statement of Risk
We believe the key risk to our earnings forecast and valuation is a slowdown in
the consumer market, which, we believe could affect earnings and valuations in
the sector. In a high-raw-material-cost environment, sluggish sales could also
affect earnings.
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