Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestle India (NEST)
Consumer products
Analyst meet takeaways. Nestle indicated that it operates with margins in a band
(EBITDA of 19-21%, in our view) and CY2011E margins could decline due to input cost
inflation (coffee, milk, palm oil) and impact of incremental 1% excise duty (which is
potentially a precursor to a higher rate under GST). Nestle is nervous to face
competition in noodles category (particularly ITC), in our view. At 35X FY2012E, there is
no room for execution risk. We like the market opportunity for most of Nestlé’s
categories, but look for better entry points into the stock.
Key takeaways from analyst meet
` CY2011E is likely a challenging year in Nestlé’s view. It says that the company operates margins
in a band (EBITDA of 19-21%, in our view) and CY2011E margins could decline due to input
cost inflation (coffee, milk, palm oil) and impact of incremental excise duty. According to the
company, the imposition of 1% excise duty could potentially impact CY2011E EBITDA margins
by 50 bps, if it is not passed on.
` Capex: It outlined capacity expansion plans, (1) new greenfield plant in Tahliwal, Himachal
Pradesh for noodles and chocolates, (2) expansion of dairy capacity in Moga, (3) doubling
noodles capacity in Samalkha, (4) adding a new noodles line in Bicholim, (5) expansion of
Nanjangud facility to include noodle line as well, and (6) addition of a pasta line in Pantnagar.
The company is planning to invest ~Rs25 bn over CY2011-13E, in our view.
` Company added 464,000 new outlets in its coverage (which is a 15% growth, in our view). We
recall that Nestle is working on increasing the distribution coverage to 5 mn outlets from 3 mn
outlets over CY2009-14E.
` The company indicated its intention to focus on premiumisation in most categories—chocolates
and dairy, in our view.
` The Pantnagar facility (accounting for ~10-15% of throughput, in our view) is entering the sixth
year of operations (only 30% of profits will be exempt compared with 100% earlier) and hence
the effective income tax rate could increase by ~200 bps in CY2011E.
` Bringing of various food products (noodles, pasta, soups etc.) into tax net with 1% excise duty
is a precursor to a potentially higher rate under GST, in our view.
` The company has received RBI approval for raising US$450 mn ECB from foreign equity holders.
It is likely to raise this in tranches over CY2011-13E as a loan from parent, in our view.
Nestle is nervous to face competition in noodles category, in our view
We continue to believe that Maggi faces product substitution risk (from Foodles, Knorr and
Yippie). However, the spate of new launches in Maggi (four new variants) indicates that
competition seems to have triggered higher activity levels in the industry, led by the market
leader. We note that this can potentially help Maggi maintain its current growth rates by
increasing the consumption points.
However, we are surprised at the company’s aggression in the analyst meet regarding
competitive activity in the noodles category. It commented that the company has not lost
market shares and that many of the newer entrants are probably not long-term players in
the category.
At 35X FY2012E, there is no room for execution risk. Retain REDUCE
We like the market opportunity for most of Nestlé’s categories, but look for better entry
points into the stock. We maintain estimates and REDUCE rating with TP of Rs3,100. Key
risks to our rating are (1) higher-than-expected sales growth due to distribution gains and (2)
better than-expected margin expansion.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestle India (NEST)
Consumer products
Analyst meet takeaways. Nestle indicated that it operates with margins in a band
(EBITDA of 19-21%, in our view) and CY2011E margins could decline due to input cost
inflation (coffee, milk, palm oil) and impact of incremental 1% excise duty (which is
potentially a precursor to a higher rate under GST). Nestle is nervous to face
competition in noodles category (particularly ITC), in our view. At 35X FY2012E, there is
no room for execution risk. We like the market opportunity for most of Nestlé’s
categories, but look for better entry points into the stock.
Key takeaways from analyst meet
` CY2011E is likely a challenging year in Nestlé’s view. It says that the company operates margins
in a band (EBITDA of 19-21%, in our view) and CY2011E margins could decline due to input
cost inflation (coffee, milk, palm oil) and impact of incremental excise duty. According to the
company, the imposition of 1% excise duty could potentially impact CY2011E EBITDA margins
by 50 bps, if it is not passed on.
` Capex: It outlined capacity expansion plans, (1) new greenfield plant in Tahliwal, Himachal
Pradesh for noodles and chocolates, (2) expansion of dairy capacity in Moga, (3) doubling
noodles capacity in Samalkha, (4) adding a new noodles line in Bicholim, (5) expansion of
Nanjangud facility to include noodle line as well, and (6) addition of a pasta line in Pantnagar.
The company is planning to invest ~Rs25 bn over CY2011-13E, in our view.
` Company added 464,000 new outlets in its coverage (which is a 15% growth, in our view). We
recall that Nestle is working on increasing the distribution coverage to 5 mn outlets from 3 mn
outlets over CY2009-14E.
` The company indicated its intention to focus on premiumisation in most categories—chocolates
and dairy, in our view.
` The Pantnagar facility (accounting for ~10-15% of throughput, in our view) is entering the sixth
year of operations (only 30% of profits will be exempt compared with 100% earlier) and hence
the effective income tax rate could increase by ~200 bps in CY2011E.
` Bringing of various food products (noodles, pasta, soups etc.) into tax net with 1% excise duty
is a precursor to a potentially higher rate under GST, in our view.
` The company has received RBI approval for raising US$450 mn ECB from foreign equity holders.
It is likely to raise this in tranches over CY2011-13E as a loan from parent, in our view.
Nestle is nervous to face competition in noodles category, in our view
We continue to believe that Maggi faces product substitution risk (from Foodles, Knorr and
Yippie). However, the spate of new launches in Maggi (four new variants) indicates that
competition seems to have triggered higher activity levels in the industry, led by the market
leader. We note that this can potentially help Maggi maintain its current growth rates by
increasing the consumption points.
However, we are surprised at the company’s aggression in the analyst meet regarding
competitive activity in the noodles category. It commented that the company has not lost
market shares and that many of the newer entrants are probably not long-term players in
the category.
At 35X FY2012E, there is no room for execution risk. Retain REDUCE
We like the market opportunity for most of Nestlé’s categories, but look for better entry
points into the stock. We maintain estimates and REDUCE rating with TP of Rs3,100. Key
risks to our rating are (1) higher-than-expected sales growth due to distribution gains and (2)
better than-expected margin expansion.
No comments:
Post a Comment