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http://content.icicidirect.com/mailimages/ICICIdirect_NestleIndia_InitiatingCoverage.pdf
S t r o n g b r a n d d o m i n a n c e t o r u l e g r o w t h …
Nestlé India Limited (NIL), the undisputed leader of instant noodles
(~88% share by volume in FY11) and milk products segment in India, is
largest food company in country. Its strong brands, ‘Maggi’, ‘Cerelac’,
‘Nescafe’ and ‘KitKat’ have become synonymous with the respective
categories. Despite increasing competition in the segments (noodles,
milk products and chocolate), NIL’s strong brand value has helped it to
consistently maintain its volume growth (~12% CAGR FY04-11). Going
ahead, with slew of new launches and aggressive promotion
campaigns, we expect the sales growth by volumes to be at 13.1%
CAGR and revenue growth to be 17.8% CAGR (CY11-13E). Growth in
profitability would continue to be impressive at ~20.7% CAGR (CY11-
13E), in spite of the huge capex undertaken by the company. We initiate
coverage on the stock with BUY rating.
ƒ Volumes growth to remain robust
Nestlé India’s revenues (gross) have grown at a CAGR of 18.3% from
|2372.6 crore in CY04 to |7673.6 crore in CY11. The growth was largely
driven by volumes (11.8% CAGR CY04-11) with the price led growth
being moderate (5.8% CAGR CY04-11). Strong brand equity of its flagship
brands (Maggi, Cerelac, Nescafe and KitKat), vast distribution network (4.1
million outlets) and the company’s immunity to cost hikes have helped it
to consistently grow through volumes. Going ahead, we believe that sales
growth would continue to be driven by volumes (13.1% CAGR CY11-13E)
largely in the prepared dishes and chocolates segment.
ƒ Opportunity size big in foods
With the country’s food consumption expected to reach 230 billion USD
(CAGR of 5.6% CY08-13E according to BMI, Q12009 & CSO) by 2013, and
NIL being the largest food company, we believe that there is a huge
untapped opportunity for the company. Further, the increasing rural
consumption growth in the categories such as instant snacks, milk
products and chocolates and NIL’s dominant share in these categories,
we believe the double digit growth in revenues to sustain.
Valuation
Historically, NIL has traded at 1.5x premium to FMCG index which we
believe is justified backed by the consistency in its earnings, strong free
cash flows, high RoEs, and opportunity size in its business. At the CMP,
stock is trading at 37.7x its CY12E EPS of |122.1, (~30% higher than its
average range of ~27x 1-year forward P/E for past 5 years) and 31.7x its
CY13E EPS of |145.3. We have valued the stock by average fair value of
P/E, price to sales and DCF methodology, arriving at a TP of | 5074/share
with a BUY rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_NestleIndia_InitiatingCoverage.pdf
S t r o n g b r a n d d o m i n a n c e t o r u l e g r o w t h …
Nestlé India Limited (NIL), the undisputed leader of instant noodles
(~88% share by volume in FY11) and milk products segment in India, is
largest food company in country. Its strong brands, ‘Maggi’, ‘Cerelac’,
‘Nescafe’ and ‘KitKat’ have become synonymous with the respective
categories. Despite increasing competition in the segments (noodles,
milk products and chocolate), NIL’s strong brand value has helped it to
consistently maintain its volume growth (~12% CAGR FY04-11). Going
ahead, with slew of new launches and aggressive promotion
campaigns, we expect the sales growth by volumes to be at 13.1%
CAGR and revenue growth to be 17.8% CAGR (CY11-13E). Growth in
profitability would continue to be impressive at ~20.7% CAGR (CY11-
13E), in spite of the huge capex undertaken by the company. We initiate
coverage on the stock with BUY rating.
ƒ Volumes growth to remain robust
Nestlé India’s revenues (gross) have grown at a CAGR of 18.3% from
|2372.6 crore in CY04 to |7673.6 crore in CY11. The growth was largely
driven by volumes (11.8% CAGR CY04-11) with the price led growth
being moderate (5.8% CAGR CY04-11). Strong brand equity of its flagship
brands (Maggi, Cerelac, Nescafe and KitKat), vast distribution network (4.1
million outlets) and the company’s immunity to cost hikes have helped it
to consistently grow through volumes. Going ahead, we believe that sales
growth would continue to be driven by volumes (13.1% CAGR CY11-13E)
largely in the prepared dishes and chocolates segment.
ƒ Opportunity size big in foods
With the country’s food consumption expected to reach 230 billion USD
(CAGR of 5.6% CY08-13E according to BMI, Q12009 & CSO) by 2013, and
NIL being the largest food company, we believe that there is a huge
untapped opportunity for the company. Further, the increasing rural
consumption growth in the categories such as instant snacks, milk
products and chocolates and NIL’s dominant share in these categories,
we believe the double digit growth in revenues to sustain.
Valuation
Historically, NIL has traded at 1.5x premium to FMCG index which we
believe is justified backed by the consistency in its earnings, strong free
cash flows, high RoEs, and opportunity size in its business. At the CMP,
stock is trading at 37.7x its CY12E EPS of |122.1, (~30% higher than its
average range of ~27x 1-year forward P/E for past 5 years) and 31.7x its
CY13E EPS of |145.3. We have valued the stock by average fair value of
P/E, price to sales and DCF methodology, arriving at a TP of | 5074/share
with a BUY rating.
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