Nestle India Ltd - Research Report
Private Client Research
Rating
Buy
Sector
Consumer Food
Company
Consumer Food
November 01, 2018
Sensex: 34431.97
CNX Nifty: 10380.45
NSE: NESTLEIND
BSE: 500790
Reco Price
Rs. 10182
Price Target (1 Year)
Rs. 12210
Upside
19.92%
Date
November 01, 2018
Sensex
34431.97
CNX Nifty
10380.45
Exchange
Code
NSE
NESTLEIND
BSE
500790
Stock Data
CMP (Rs)
9969.50
Face value (Rs)
10
52 Week Range (Rs)
11705.00 - 6887.25
Market cap (Rs Crores)
95991.97
Price To Book Value (x)
23.69
P/E Ratio (x)
62.51
EV/EBIDTA (x)
34.27
One Year indexed Stock Performance
Nestle India Ltd
Sensex
Return (%)
1m
6m
12m
36m
Absolute
3.43
7.94
36.19
59.12
Sensex
-5.73
-2.12
2.48
29.64
Shareholders
(in %)
30-Sep
Promoter
62.76
Public
37.24
Others
0
Total
100
+91 22 6639 3000
research@stockaxis.com
Profile
Nestle India, subsidiary of NESTLÉ S.A. of Switzerland, is a leading FMCG company of India (FMCG is the acronym for fast moving consumer goods) with a number of marquee brands across product categories. It has 8 factories and a large number of co-packers across the country. Few of the company’s brands such as Maggi and Nescafe are market leaders in their respective categories. The company has been in existence for more than a century and is present across the length and breadth of the country.
About NESTLÉ S.A.
Present in 191 countries around the world, Nestlé S.A. is the world’s
largest food and beverage company with more than 2,000 brands ranging from global
icons to local favourites.
Product Portfolio
| Category | Products |
|---|---|
| Beverages | Nescafe, Nescafe Classic, Nescafe Sunrise, Nestea, Nescafe Cappuccino, Nescafe Gold |
| Breakfast Cereals | Nesplus Fillows, Kokos, Granola, Cerelac |
| Chocolates & Confectionery | Nestle Classic, KitKat, Munch, BarOne, Milkybar, Eclairs, Polo, Party Treats |
| Milk Products and Nutrition | Grekyo Yoghurt, Ready to Drink, Everyday, Dahi, Slim Milk, Raita, Probiotic Dahi, Milkmaid |
| Prepared Dishes and Cooking Aids | Maggi Instant Noodles, Soups, Sauce, Hot Heads, Chicken Noodles, Oats, Atta Noodles, Bhuna Masala, Coconut Milk Powder, Maggi Masala, Pazzta, Ketchup |
Region-wise Sales
Higher penetration of existing products and launch of new products to drive growth
Solidification of leading position in existing brands:
Nestle holds a leadership position in many product categories – over 85% of
the product portfolio. It enjoys enormous brand recall in products like instant
noodles (Maggi), instant coffee (Nescafe), chocolates (Classic, KitKat, Munch, Milkybar),
Cereals (Cerelac, Lactogen). These brands are cash generators for the company as
they have good margins and tremendous operating leverage. The company focuses on
making these brands available in as many retail outlets as possible to leverage
on the name that has been created over the years. These brands will continue to
bring in much needed cash for distribution to shareholders and for investments in
new products.
Investment in new brands:
Nestle continually enters different product categories which are synergistic with
its existing product portfolio to push more products through its existing channels.
This helps the company gain higher share of the consumer’s wallet. While many
of these products do not achieve the desired scale and are phased out or brought
back to the drawing board, some of them go on to become blockbusters and contribute
massively to the topline and bottomline. All this is done at minimal capital expenditure
helping the company grow with very low investments.
Competent management:
Nestle’s management steered the company out of the Maggi fiasco and brought
the company back on the growth track in record time. The management is now committed
to introducing products in health and wellness, to diversify the stream of revenue
and expand the product portfolio. With the management’s focus towards profitable
growth, we believe, Nestle will keep growing at a brisk pace and keep rewarding
its shareholders with decent dividends.
Outlook :
With the existing line of products and new products in the pipeline, we believe
Nestle can post revenue growth of high single digits, with EBITDA margins of 20-22%.
Industry
The FMCG sector is the fourth largest sector in the Indian economy with household and personal care accounting for 50% of sales. Lifestyle changes, rising income, increased awareness and better availability are some of the key drivers of FMCG demand in India. Major FMCG sales (55%) come from urban India; however, rural is catching up fast led by growing aspirations and improved reach of FMCG companies led by better infrastructure.
The retail market is estimated to be US$ 1 trillion while the FMCG sector revenues reached US$ 53 billion. The market is set to grow significantly led by the advent of GST (Goods and Services Tax), growing reach of modern retail, improving economy and high share of youth in the population composition.
Profit & Loss Statement:- (Standalone)
(Rs Crores)
| Description | Dec-15 | Dec-16 | Dec-17 | Dec-18E | Dec-19E | Dec-20E |
|---|---|---|---|---|---|---|
| Net Sales | 8175.00 | 9141.00 | 10010.00 | 10961.00 | 12057.00 | 13262.00 |
| Growth (%) | 11.82% | 9.50% | 9.50% | 10.00% | 10.00% | |
| COGS | 2921.00 | 3220.00 | 3617.00 | 3946.00 | 4340.00 | 4774.00 |
| Gross Profit | 5255.00 | 5922.00 | 6392.00 | 7015.00 | 7716.00 | 8488.00 |
| Gross Profit Margin | 64.28% | 64.78% | 63.86% | 64.00% | 64.00% | 64.00% |
| Power & Fuel Cost | 222.00 | 233.00 | 288.00 | 318.00 | 350.00 | 385.00 |
| % Sales | 2.72% | 2.55% | 2.88% | 2.90% | 2.90% | 2.90% |
| Employee Benefits Expenses | 913.00 | 902.00 | 1017.00 | 1107.00 | 1224.00 | 1346.00 |
| % Sales | 11.16% | 9.86% | 10.16% | 10.10% | 10.15% | 10.15% |
| Other Manufacturing Expenses | 755.00 | 872.00 | 920.00 | 997.00 | 1085.00 | 1194.00 |
| % Sales | 9.23% | 9.54% | 9.19% | 9.10% | 9.00% | 9.00% |
| General & Administration Exp | 683.00 | 783.00 | 806.00 | 877.00 | 965.00 | 1061.00 |
| % Sales | 8.36% | 8.56% | 8.05% | 8.00% | 8.00% | 8.00% |
| Selling & Distribution Exp | 912.00 | 963.00 | 1011.00 | 1096.00 | 1206.00 | 1326.00 |
| % Sales | 11.16% | 10.54% | 10.10% | 10.00% | 10.00% | 10.00% |
| Miscelleneous Exp | 186.00 | 320.00 | 253.00 | 274.00 | 301.00 | 332.00 |
| % Sales | 2.28% | 3.50% | 2.53% | 2.50% | 2.50% | 2.50% |
| Total Expenditure | 6592.00 | 7292.00 | 7913.00 | 8615.00 | 9470.00 | 10417.00 |
| Less: Expenses Capitalised | - | - | - | - | - | - |
| EBITDA | 1583.00 | 1850.00 | 2097.00 | 2346.00 | 2586.00 | 2845.00 |
| EBITDA Margin | 19.37% | 20.24% | 20.95% | 21.40% | 21.45% | 21.45% |
| Other Income | 110.00 | 151.00 | 177.00 | 180.00 | 185.00 | 190.00 |
| Depreciation | 375.00 | 354.00 | 342.00 | 353.00 | 363.00 | 374.00 |
| EBIT | 1318.00 | 1647.00 | 1931.00 | 2173.00 | 2408.00 | 2661.00 |
| Interest | 3.00 | 91.00 | 92.00 | 70.00 | 70.00 | 70.00 |
| Profit Before Tax and Exceptional Items | 1314.00 | 1556.00 | 1839.00 | 2103.00 | 2338.00 | 2591.00 |
| Exceptional Items | (501) | (11) | - | - | - | - |
| Profit Before Tax | 814.00 | 1545.00 | 1839.00 | 2103.00 | 2338.00 | 2591.00 |
| Tax | 250.00 | 544.00 | 614.00 | 702.00 | 781.00 | 865.00 |
| Tax rate | 30.77% | 35.20% | 33.39% | 33.40% | 33.40% | 33.40% |
| Profit After Tax | 563.00 | 1001.00 | 1225.00 | 1401.00 | 1557.00 | 1725.00 |
| PAT Margin | 6.89% | 10.95% | 12.24% | 12.78% | 12.92% | 13.01% |
| Share of Associates | - | - | - | - | - | - |
| Minority Interest | - | - | - | - | - | - |
| Consolidated Net Profit | 563.00 | 1001.00 | 1225.00 | 1401.00 | 1557.00 | 1725.00 |
| No of shares | 9.60 | 9.60 | 9.60 | 9.60 | 9.60 | 9.60 |
| EPS | 58.42 | 103.85 | 127.07 | 145.26 | 161.50 | 178.95 |
| CMP | 5824.00 | 6030.00 | 7845.00 | 10226.00 | 10226.00 | 10226.00 |
| Market Cap | 56154.00 | 58142.00 | 75640.00 | 98598.00 | 98598.00 | 98598.00 |
| Debt | 18.00 | 33.00 | 35.00 | 175.00 | 175.00 | 175.00 |
| Cash | 500.00 | 880.00 | 1457.00 | 1457.00 | 1457.00 | 1457.00 |
| PE | 99.70 | 58.10 | 61.70 | 70.40 | 63.30 | 57.10 |
| EV/EBITDA | 35.17 | 30.97 | 35.40 | 41.49 | 37.63 | 34.21 |
Source: Stockaxis Research, Company Data
Valuation
At the current market price of Rs. 10,226, the stock trades at a PE of 70x CY18E EPS and 63x CY19E EPS. We recommend ‘Buy’ with a target price of Rs. 12,210, valuing the stock at a PE of 75x CY19E EPS.