Nestle India - Nutrition, Health And Wellness Mantra To Sweeten Deal; Visit Note :: Edelweiss

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Recovering albeit slowly… • Nestlé India:: ICICI Securities, PDF link

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Nestle India - Best Play On Urban Recovery; Result Update Q3CY14 :: Edelweiss PDF link

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Hold Nestle; Target Price: Rs5,450; Microsec

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Nestle, J & K Bank, Oil & Gas, Economy:: Kotak reports from 19 Sep :: Kotak Sec, PDF report link

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Company
Nestle India: RM/pricing tailwinds drive EPS upgrades; valuations stretched
` Multiple tailwinds drive upgrades to our EPS estimates
` However, core concerns remain; retain SELL with revised target price of
Rs5,300
` We note we have baked in a robust volume/earnings recovery over
CY2014-16E


J&K Bank: Floods send fresh pangs of pain
` 50% of the loan book within the state of J&K is probably at risk
` Guidelines from RBI indicate a sharp rise in restructured loans
` An overhang that is likely to extend beyond a year; NPLs could rise
moderately in the short term
` Maintain REDUCE as the concerns continue to increase

Sector
Energy: BPCL>IOCL>HPCL
` Sharp increase in normalized net debt of HPCL and IOCL; modest increase
for BPCL
` BPCL's operating cash flows fund capex, leading to enhancement of core
business
` Increase in net debt for IOCL is associated with significant capex in
greenfield projects
` HPCL's rising net debt has not resulted in much improvement in core
business metrics
` BPCL remains our preferred pick among OMCs


Economy
Economy: Notes from Delhi: strong government commitment
` Activity level is palpable
` Focus on urban development
` Stable macro picture, numbers can take some time to deliver
` Government committed to reforming the capital market



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Nestle - Q2CY13 Result Update - Centrum

Continued focus on margins
Nestle posted Q2CY13 results in-line with expectations with net sales at
Rs22132mn, up 11.4%YoY following the growth of 9.2% YoY in domestic
sales and 47% YoY in exports. The company posted positive volume growth
during the quarter while it was up 1.6% for H1CY13. Operating profit was up
13.6% YoY as operating margin expanded 43bps due to 22bps gross margin
expansion and lower admin & other expenditure. Adj PAT was up 16.2% YoY
to Rs2823mn. We maintain Sell rating on the stock on the back of near term
challenges.
Results in-line with expectations: Nestle posted 11.4%YoY growth in net sales
following 9.2% YoY growth in domestic sales while exports grew 47% YoY on the back
of lower base and strong exports to affiliates. Operating profit was at Rs4880mn up
13.6%YoY as operating margin expanded by 43bps due to gross margin expansion of
22bps while admin & other expenditure grew by mere 9.6% YoY. Adj. PAT was at
Rs2823mn, (up 16.2% YoY).
Volume growth continues to be under pressure: Continued uncertainty in demand on
the back of challenging macro environment coupled with portfolio optimization and
aggressive pricing impacted volume growth. The company posted positive volume
growth during the quarter while for H1CY13 it was up 1.6% due to strong growth in
prepared dishes (up 6.5%) and beverages (up 6.5%). Volume growth in the milk products
& nutrition and chocolate segments was down 4.9% and 3.3% respectively for H1CY13.
Going forward we expect the company to post volume growth of 4.2% in CY13 against
1% in CY12 with beverages and prepared dishes both growing by 9% each. However, we
have modelled volume de-growth in milk & nutrition (3%) and chocolates (1%)

Nestle India Analyst meet: Excessive margin focus a long-term risk ::Credit Suisse

● Nestle held its analyst meeting yesterday, where it signalled no
change in direction in the company’s margin-focussed strategy.
● We believe the company's priority is margins. Nestle continues to
discontinue low-price SKUs where margins are not ‘acceptable’;
1H CY13 saw 250 bp of volume impact. With the company level
EBITDA margin at over 22%, we find it tough to understand this
strategy. Also it is surprising that the company has cut ad spends
by another 30 bp from an already low base in this environment of
negligible volume growth.
● Nestle's volumes grew 1.6% YoY in 1H CY13, on a base year with
almost zero volume growth. Milk and nutrition, and chocolates
continue to see significant YoY volumes decline. We expect market
share erosion to continue. Increasing competition in milk and
nutrition from Danone and Abbott, and media reports of ITC’s entry,
make Nestle highly vulnerable to further share loss, in our view.
● We maintain our UNDERPERFORM rating. We believe any recovery
in growth rates has to be preceded by a period of margin pain. In the
interim, we see risk for the company from high competition.

Nestlé India - Q1CY13: Volume concerns persist; margins surprise on the upside :JPMorgan

Nestlé India reported another quarter of subdued domestic revenue growth,
though margins continued to surprise on the upside. Company registered Net
Sales, EBITDA and adjusted PAT growth of 10%, 16% and 8% respectively for
Q1CY13. Volume growth continues to remain subdued given severe impact from
weak consumer sentiment (impacting discretionary spends on packaged foods),
aggressive pricing and portfolio/channel optimization. We remain constructive on
the company’s long term growth potential, but see near term top-line growth
challenges and current valuations at 37x CY13E and 32x CY14E P/E as limiting
upside potential. Volume growth recovery remains the key for stock performance
going forward. We expect volume growth rates to recover gradually in 2013
supported by new capacity commissioning, wider product base, enhanced
distribution reach and a bit more competitive pricing in some of the categories.
RM inflation outlook appears benign and that should help margins to hold out.
 Domestic sales growth subdued at 8%. Domestic sales growth remained
sluggish at 8% during Q1. We believe much of the growth has been led by
higher pricing and improved mix. Volume growth has been affected adversely
by challenging macro, portfolio/channel optimization and aggressive pricing.
Exports sales growth was however strong at 51% contributed largely by exports
to affiliates which rose 98% y/y. Exports to third parties grew by 9% y/y.
Management noted that they expect some volatility to continue throughout 2013
and while some categories are showing positive signals, some may take some
more time.
 Substantial margin improvement: Nestlé India continued to manage RM
inflation with strong pricing and improved channel/product mix leading to a
60bps y/y expansion in gross margins. EBITDA margins were further supported
by moderate increase in other expenses (+6% y/y) adding 80bp to margins.
Overall EBITDA margins expanded 140bp y/y and EBITDA grew 16% y/y.
Other financial income improved largely due to higher average liquidities,
though other operational income declined y/y due to lower realisation of export
incentives.
 Higher depreciation and interest costs weighed on earnings. The company
didn’t draw any new debt for capacity expansion during the quarter with total
debt outstanding at Rs 10.4bn (US$192mn). Depreciation cost increased 56%
y/y (flat q/q) due to significant capacity expansion undertaken over the past
year. Adjusted interest costs were at Rs79Mn (~3.5x y/y, -20% q/q) due to
higher debt y/y (taken for aggressive capex done over CY11/12).

Nestlé India Limited :Annual Report Review: Volume concerns dominate 2012; hoping for a better 2013: JPMorgan

We analyse 2012 annual report for Nestlé India in this note. Post nearly flat
volume growth in 2012, we expect growth rates to recover in 2013 supported by
new capacity commissioning, wider product base and enhanced distribution
reach. EBITDA margins in 2012 were the highest seen in the past decade,
benefiting from price increases and favorable product/channel mix. Management
anticipates that moderation in growth rates will show steady recovery in the short
term and growth momentum will revive soon.
 Pricing led growth in 2012 as vol growth was nearly flat at 0.8% impacted
by challenging macro impacting packaged food industry growth adversely,
lower export sales and to some extent by portfolio churn in favor of better
margin products in chocolate and milk product segments. Revenue growth
across categories - milk pdts: 15% (vol:-5%, price: 21%), beverages: 5% (vol:-
5%, price: 11%), prepared dishes: 13% (vol:8%, price:4%) and chocolates:6%
(vol:-9%, price:17%). Vol growth moderated more in 2HCY12 to 0.5% vs.
1.1% in 1HCY12. Revenue mix was relatively stable vs last year. New
product/variant launches and renovations continued particularly in prepared
dishes and dairy segment. In 2012, Nestlé added 0.5mn new retail outlets
(0.4mn added in 2011). The number of SKUs was reduced by over 20%,
bringing down complexity costs across value chain.
 Substantial margin improvement. Commodity cost pressures were managed
well via price hikes, cost control and improved product/channel mix. Gross
margins expanded sharply by 250bp y/y and EBITDA margin improved 130bp
y/y, though employee (+21% y/y) and power & fuel (+25% y/y) costs were
higher. A&P spends were up only 9% y/y with A&P/Sales dropping to 4.3%.
 Capex and debt levels remain high; WC improves further – Capex in 2012
stood at ~Rs10bn. Over 2010-12, total capex has been ~Rs30bn which compares
against cumulative capex of ~Rs13bn over CY06-10. Debt levels stood at
US$192mn, which are likely to remain stable considering the significant
capacity expansion plans are largely done. Cash conversion cycle improved as
increase in payable days offset some deterioration in inventory days.
 2013 should be better we think. We expect volume growth rates to recover
gradually in 2013 supported by new capacity commissioning, wider product
base, enhanced distribution reach and a bit more competitive pricing in some of
the categories. RM inflation outlook appears benign and that should help
margins to hold out.

Volume growth under pressure Nestle :: Centrum

Volume growth under pressure
Nestle posted 7.8% YoY growth in revenue on the back of price hikes
across products with volume growth expected to be negative. Gross
margin expansion helped the company maintain operating margins
of ~21% while high depreciation related to capex along with higher
tax muted profitability growth to 2.4%. We have marginally reduced
our volume growth estimates and downgrade our rating to Sell.
Results lower than expectations: Nestle posted mere 7.8% YoY growth
(lowest growth in last 30 quarters) in revenues to Rs21,156mn (3.8% below our
expectations). Domestic net sales grew by 7.6% and exports by 10.5%.
Operating profit was at Rs4,434mn (up 8.1% YoY) on the back of 6bps margin
expansion while PAT was 7% below our expectations at Rs2,751mn (up 2.4% YoY).

Nestle :Management meeting confirms near-term caution:: , Nomura research,

We met the top management of Nestle India at their half yearly analyst
meet. The feeling we get coming back from the meeting is quite mixed;
while volume growth is not as bad as it seems, the company is still well
below its long-term average and will take time to improve. However, the
impression we got was that management was quite confident in growth
from a long-term perspective and seems to have a very clear strategy
already in the works. Our key takeaways from the meeting:

Cautious outlook; aggressive capex -Nestle:: Motilal Oswal

Cautious outlook; aggressive capex
Long-term prospects and positives priced in
We attended the Analyst Meet of Nestle India where management vigorously
defended its current strategy of balancing growth v/s margins and reiterated
that Nestle will not sacrifice margins for chasing volume growth.
Key takeaways
 Management continues to maintain its cautious stance due to the weak
macroeconomic environment. It had been cautious for a long time, and now
it is “more cautious”.
 Nestle will try to balance volumes and profitability and not chase volumes at
the cost of margins. Its volume growth in the past 4-5 quarters has been dismal.
 Management emphasized on the Real Internal Growth (RIG i.e. growth in
sales at previous year’s prices) which captures the impact of volume as well
as price mix. RIG for all the categories is higher than reported volume growth
as shown in the chart below.

Nestle - Filling capacity to the brim; visit note; Hold ::Edelweiss, PDF link

Nestle (NEST IN, INR 4,635, Hold)

We recently met Nestle management. Volume growth which has been lower than expectation in the past few quarters remains challenging due to discretionary slowdown in foods and high competitive intensity in Coffee, Chocolates and Noodles. On the positive side, the company’s capacity is now largely in place to meet any demand. Also roping in Amitabh Bachchan for its brand Maggi has aided a revival in the brand’s volume growth. Few innovations like Milkmaid Creations Kulfi have done exceptionally well. However, raw material pressure remains high. We expect a pick-up in the new product pipeline aided by the likely commencement of its R&D center and backed by aggressive ad spends (new focus on digital and regional media) that might help reverse the slowdown in sales. Maintain ‘HOLD’. 

Nestle India: Book Profits ::Business Line

Despite Nestle's wide range of products and strong brands, lower consumer spend and intensifying competition are of concern.

Nestle India's advantage lies in its presence in the under-penetrated foods market, while FMCG peers battle it out in soaps, skin-care, shampoos and detergents. Nestle has a strong brand portfolio spanning diverse segments — Cerelac, in baby foods, Maggi, in prepared dishes, and Nescafe, in instant coffee, to name but a few, which aid in pricing power. That has helped the company maintain operating margins at around 20 per cent.

The prepared dishes segment has registered the strongest growth for the company, supported by both prices and volumes. But in its other segments of milk and nutrition, confectionery, and beverages, Nestle has managed minimal volume growth, with sales expansion coming in primarily from price increases.

Overall sales and profit growth for the company has been steadily decelerating over the past several quarters.

Prices of key inputs have not begun to abate, which could prompt more product price hikes. Also, consumers continue to feel the pinch of inflation. This may cause the squeeze on consumer spending on FMCGs to intensify. Besides, competition is increasing in both dairy products and prepared foods.

Therefore, Nestle may find it difficult to meet the expectations demanded by the stock's current price earnings multiple. At Rs 4,509, the stock trades at 45 times trailing twelve month earnings, a premium to FMCG peers. With limited room for upside in stock prices, investors can pare exposure to the stock.

Nestlé India -Gearing up for growth : Antique

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Nestlé India
Gearing up for growth
Nestlé India's performance has been below expectations with a further
slowdown in volume growth during 1QCY12 due to substantial price
hikes (13%). However, going ahead, over the next six months, we believe
that it would post a recovery in volumes with ramp up in marketing
spends and increase in distribution. Additionally, the rising awareness
for nourishment in the rural markets augurs well for the long-term growth
plans of the company. We maintain a HOLD recommendation.
􀂄 Net sales grew by 13.1% to INR20.5bn in the backdrop of a 13.7% growth in
domestic sales at INR19.5bn and 3.3% growth in export sales at INR1.01bn. In
our view domestic volume growth during the quarter has been almost flat.
􀂄 EBITDA grew by 19% to INR4.57bn and EBITDA margin expanded by 104bps to
22.3%. The improvement in EBITDA margin was on account of 301bps drop in
raw material cost to 45.8%. However, this improvement in EBITDA margin was
below our expectations due to a 90bps increase in staff cost to 7.6% of net sales
and 107bps increase in other expenses to 24.3% of net sales. The increase in staff
cost has been due to increase in headcount to support the company's expansion
initiatives. Additionally, the increase in other expenditure we believe has been
because of ramp up in marketing expenditure.
􀂄 Profit before tax grew by 14% to INR4.16bn while recurring PAT grew at a lower
rate of 10% to INR2.9bn due to an increase in effective tax rate by 248bps to
30.6% of PBT.
􀂄 Our channel checks suggest a substantial increase in marketing initiatives to fuel
strong growth in sales during the next three years backed by the capacity expansion.
Therefore, we believe that volume growth will recover over a period of six months
led by the substantial ramp up in operations and subsiding of the impact of the
price hikes. Additionally, the company's medium to long-term growth potential
remains strong with rising awareness of nourishment even in the rural markets.
Valuation and outlook
At the CMP of INR4,938, the stock is trading at a PE of 40.5x CY12e and 33x CY13e.
We believe that Nestlé India would witness a strong recovery in sales momentum
during CY13e backed by the ramp up in production and distribution. We therefore
upgrade our EPS estimates by 2.4% for CY13e to INR149.8. We maintain our HOLD
recommendation on the stock at the current levels with a target price of INR4,495

Nestlé India Hold Target Price: Rs4,428 :: Centrum

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Nestlé India

Hold

Target Price: Rs4,428

CMP: Rs4,700         

Downside: 5%

Expensive valuations

We believe Nestlé India’s revenue CAGR of 19.8% over CY11-14E will be ahead of other non-food companies driven by high market share, low penetration in high growth categories across baby food, dairy whiteners, noodles and chocolates. We are also bullish on the food processing sector in the country and believe leaders including Nestlé would benefit the most with changing consumer behavior. But, high capex driven debt could impact profitability in the near term. At current valuation we believe volume growth risk is not priced in the stock and there is little room for earnings disappointment. Hence we initiate coverage with a HOLD rating on the stock.

m  Volume growth to bounce back: We expect volume growth to bounce back to CY10 levels after it posted a meagre 6.8% in CY11, the lowest since CY06. Volume growth dipped further in Q4CY11 to mere 1.5% on the back of de-growth of11% in chocolate & confectionary and 3.7% in milk products as thre was a ban on exports of milk products. Grammage reduction in noodles and chocolates segment due to raw material price increase and deliberately discouraging sales in the éclair segment due to its low margin profile also affected growth. Sales to CSD channel were low and high milk cost impacted volumes in the milk segment. Addition of new capacities in each segment would help in launching new products and increase supply of premium products. Widening distribution reach would also help in volume growth going forward.
m  Financials: We expect revenue to grow at a CAGR of 19.8% over CY11-14E to Rs128bn in CY14 on the back of ~16% volume growth while operating profit is set to grow at a CAGR of 19.5% over CY11-14E to Rs26.52bn in CY14E on the back of steady gross margins and operating margins. RoCE is expected to moderate significantly as the company raised Rs9.7bn debt to fund its capex. It raised ECBs loan of $136Mn from its parent Nestlé S.A. for a 5-year period. Due to high capex, the company has capped its dividend at Rs48.5/share over past three years; however this is expected to increase from CY12.
m  Stretched Valuations: Nestlé India’s current valuation is expensive as it trades on a one-year forward rolling P/E of ~33x, which is high compared to its long-run 10 year average of 25x, 5 year average of 28x and 3 year average of 32x. Relative to Sensex the stock is trading at 160% premium compared to 10 year average of 65% premium. At 40x and 33x CY12E and CY13E PE, we believe risks are not priced in the stock and there is little room for earnings disappointment. We initiate coverage with a HOLD rating and a target price of Rs4,428 based on 31x CY13E EPS of Rs142.8 which is at 20% premium to long term average and 100% premium to Sensex PE.
m  Key risks: i) Premium pricing can impact volumes; ii) Competition intensifies to reduce market share; iii) High cost inflation to impact margins

-- 

Angel Broking - Nestle India - RU1QCY2012- Result Updates - PDF link

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Nestle India - RU1QCY2012

Buy Nestlé India; Target : Rs 5074 :: ICICI Securities PDF link

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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.

NESTLE - Milkmaid keeps it sweet :: Edelweiss

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Nestle has come up with Milkmaid Creations, a new range of powdered
dessert mixes, targeting the large Indian traditional sweet market. The
product will target the convenience‐seeking consumers besides offering
an eggless cake (for India’s large vegetarian population). Once again,
Nestle has capitalized on its core competence of a quick turnaround (10‐
15 min for a dessert would be attractive). The launch also indicates that
supply constraints for the company are getting addressed gradually (we
had pointed at Nestle upping the ante in terms of new products in our
sector report ‘India Food Guide’ dated 17th Feb 2012). Cadbury (Kraft) is
also trying to capture a slice of this pie by promoting chocolates as a
substitute for sweets. Nestle remains the best play on Indian Food
segment, but maintain ‘HOLD’ as the stock is fairly valued over near term.
Milkmaid comes out of relative inactivity, savors sweet market
Nestle Milkmaid has launched Milkmaid Creations, a new range of powdered dessert
mixes. The range includes five variants‐eggless cake, ‘pista kulfi’, ‘besan laddoo’,
‘badaam kheer’ and ‘rice kheer’. The price bracket is INR95‐INR145. The desert mix
range is currently available at select outlets in 54 cities across the country.

NESTLE Margin mantra :: Edelweiss

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Nestle’s Q4CY11 revenue and PAT were in line with our estimates. Key
positives were domestic sales growth of 16.7% (on high base of 26.6% in
Q4FY10; GSK reported flat sales in noodles and HUL reported muted
growth in soups), 23.2% rise in exports, aided by INR depreciation, was
adversely impacted by ban on milk powder exports. Calibrated price hike,
superior product mix and rationalization of low margin businesses helped
gross margin expand 218bps. Key negatives were higher staff costs (to
support business expansion) and other expenditure which limited EBITDA
margin rise to 138bps. Maintain ‘HOLD’ as the stock is fairly valued.
Revenue soars 17% YoY on strong exports and domestic sales
Nestle reported robust sales spurt of ~17% YoY to INR19.5bn led by strong domestic
sales growth of 16.7% to INR18.6bn. We expect volume growth to pick up due to
commissioning of new plants. PAT grew a robust 13.5% (on base of 42.3% in Q4FY10).
EBITDA up 25.1% YoY aided by gross margin expansion
The company’s gross margin expanded 218bps YoY to 54.6% of net sales led by calibrated
price hikes and softening of its key raw material (however, milk price still very high).
EBITDA grew a strong 25.1% (on high base of 44.5% in Q4FY10) to INR4.1bn and EBITDA
margin improved 138bps to 21.1%. Staff expenses jumped 41bps to 7.5% of net sales
primarily on account of business expansion and other expenditure rose 39bps. The YTD
cost of ECB including the impact of INR depreciation (USD136mn for expansion) was
43.1% on annualized basis.
Limited tax holiday dents profit
Tax rate surged significantly by 347bps to 33.2% as its Pantnagar plant, which had
enjoyed 100% tax exemption until recently, will enjoy tax holiday on only 30% of profit.
Outlook and valuations: Fairly valued; maintain ‘HOLD’
Nestle is the best play in packaged food category in India. We believe volume growth
will continue in coming quarters with increased focus on new product launches. Also,
reduced food inflation may further aid margins. At CMP, the stock is trading at 36.1x
CY12E and 29.9x CY13E, and appears fairly valued for the near term. Hence, we
maintain ‘HOLD/ Sector Performer’.