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Company report
Nestle India Ltd.
CMP
Rs 1964.80
Target Price
Rs 2500.00
BUY
13th July, 2009
Company Snapshot
Nestle India, incorporated in the year 1959, is the largest dairy products company in India. The company has a broad portfolio of milk products & nutritions, beverages, prepared dishes & cooking aids and chocolates & confectionary. The company is a subsidiary of Nestle S.A. of Switzerland and their
history goes back to 1912 when it imported and sold products in India under
the name of ‘The Nestle Anglo Swiss Condensed Milk Company (Export)
Ltd.’
BSE Code
500790
Market Cap (Rs Mn)
19377.63
52 Week High/Low
2049.00/1220.00
Industry
Food Industry
Face Value
Rs 10.00
Shares O/S
9,64,15,716
EPS
55.39
Particulars
CEPS
64.97
Book Value
49.09
P/E
35.47
P/B
40.02
Sales
Expenditures
Operating Profit
Net Profit
OPM%
NPM %
EPS
CEPS
Quarterly Financial Highlights
Rs Million
Shareholding Pattern
14%
8%
16%
62%
Promoter owned
Public owned
FIIs owned
Others owned
For Private Circulation Only
Q1FY08
Q2FY09
Q3FY09
Q4FY09
Q1FY09
10932.60
8518.50
2414.10
1601.50
22.08
14.65
16.61
18.79
10356.30
8437.10
1919.20
1210.90
18.53
11.69
12.56
14.88
11103.70
9012.10
2091.60
1317.60
18.84
11.87
13.67
16.08
10932.70
8947.10
1985.60
1210.90
18.16
11.08
12.56
15.22
12707.80
9666.80
3041.00
1973.00
23.93
15.53
20.46
23.12
Nestle India Ltd. has reported excellent results for Q1FY09. The net sales
surged from Rs.10932.60 million in the same quarter last year to Rs.12707.80
million this quarter depicting an increase of 16.24%. This also resulted in an
increase in the operating profit to Rs.3041.00 million showing a growth of
25.97% from Q1FY08. The net profit of the company increased by 23.20% to
Rs.1973.00 million. The net sales comprised of Net Domestic Sales of
Rs.11919.7 million, up by 18.70% and Exports Sales of Rs.788.1 million.
Both the margins increased marginally. Operating profit margin rose from
22.08% to 23.93% in Q1FY09 and the Net Profit Margin saw an increase
from 14.65% to 15.53%. EPS of the company stood at Rs.20.46 increased
from Rs.16.61 in the same quarter last year.
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Business Details
Nestle India was established in India in the year 1961 with its first investment in Moga, Punjab. Nestle India manufactures products of truly
international quality under internationally famous brand names such as
Nescafe, Maggi, Milkybar, Milo, Kit Kat, Bar-one, Milkmaid and Nestea.
Nestle has been a partner in India’s growth for over nine decades now. It
encompasses a wide range of products from milk and skimmed milk to
value added products like condensed milk, curd, ghee, yoghurt and raita.
All these products are sold under various brands such as Nestle Everyday,
Nestle Milkmaid, Nestle Milk, Nestle Fresh n Natural etc. Nestle India
enjoys the leadership position in infant milk foods business. The company
has a capacity to produce 72,502 tonnes of milk products and nutritions
per annum. They are spread over seven plants located across India in the
states of Punjab, Haryana, Uttarakhand, Goa, Karnataka and Tamil Nadu.
It processes over 3.3 lakh tonnes of milk and nearly 10,000 tonnes of milk
powder per annum. The company has tied up with Heritage Food in
South, Bengal Nester in the East and Dynamix Dairy in the West for
sourcing, processing, packaging, and supplying milk. The company also
has a strong presence in the chocolates and confectionary business. It is
the second largest confectionary company in India. It is the largest coffee
company in India sold under the brands of Nestle Classic, Nescafe
Sunrise and Nescafe 3 in 1. The company also exports its instant coffee
to various countries such as Russia and Japan.
Segmental Outlook
The food processing industry which is a sub-sector of the food industry
includes milk and milk products, fruits & vegetables processing, grain
processing, fisheries, meat & poultry processing and other consumer
products such as packaged foods, confectionary, chocolates, beverages
and packaged drinking water. The Indian food market is estimated at over
$182 billion and accounts for about two-thirds of the total Indian retail
market. According to McKinsey and co., the retail food sector in India is
likely to grow from around US$70 billion in 2008 to US$150 billion by
2025. According to Dairy India 2007 estimates, the current size of the
Indian dairy sector is US$62.67 billion and has been growing at a rate of
5% per year. the dairy exports in 2007-08 rose to US$210.5 million
against US$113.57 last fiscal whereas the domestic dairy sector is slated
to cross US$108 billion in revenues by 2011. The Indian snack market
holds enormous growth potential for snack food, which is estimated to be
worth US$3 billion. The market is divided in to organized and unorganized sector. The organized sector of the snack food market is growing at
15-20 % a year while the growth rate of the US$1.56 billion unorganized
sector is 7-8%. India has a target of doubling its processed food production by 2015 and will set up 10 food technology parks during the next
year with a view to achieving this.
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Investment Rationale
Increased Sales Focus
The focus on continuous business excellence extends across the
Company. The company has an efficient distribution system and
has consistently pushed itself over the recent years to further improve its service levels and to help consumers with easier access to
the Company’s products. During the year, there was further improvement in the distribution network and availability of fresh, high
quality Nestlé products. The specialised teams for Key Account
Management, Channel and Category Sales Development, Route-tomarket and the existing trade channels continued to improve availability and visibility of products. The quality and capabilities of the
people are key to this and, during the year, the company maintained
focus on training and development of the sales teams to reinforce
skills and impart best practices and plan to continue in the future.
Technological Advancement
Nestle’s commitment to product quality is supported by state-ofthe-art technology and a high degree of automation. It is continuously working with local suppliers to help them develop capabilities
for supply of high quality raw materials increasing its technological
edge. During the year, the Company has made significant progress
in developing suppliers at par with international quality which will
help it become less reliant on imports for these raw materials. During the year, three more factories were awarded the internationally
recognized external certification ISO 14001 for adherence to environmental processes and OSHAS 18001 for Health and Safety.
With this, all the seven factories of the Company now have ISO
14001 and ISO 18001 certifications. The company’s factories not
only create world class products delivering Nutrition, Health and
Wellness but also provide economic prosperity to farmers by processing agricultural products in a sustainable manner.
Robust Financial Performance
Nestle reported great results for the CY 2008. The total revenue for
the company rose from Rs.35130.80 million in CY2007 to
Rs.43351.10 million in this financial year resulting in a growth rate
of 23.40%. The operating profit of the company rose to Rs.8438.00
million from Rs.6874.90 million showing a growth of 22.74%. The
profit before tax during the year 2008 was Rs.7728.20 million
whereas in the CY07 it was Rs.6286.10 million. The bottom line of
the company increased by 29.06% from Rs.4138.10 million last
year to Rs.5340.80 million this year. The EPS of the company stood
at Rs.55.39 which increased from last year’s Rs.42.92.
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Consolidated Financial Matrix
Rs. Million
Particulars
FY05
24769.00
FY06
28160.60
13.69
24.75
23.40
Expenditure
19745.30
22894.20
28255.90
34913.10
EBITDA
5023.70
5266.40
6874.90
8438.00
4.83
30.54
22.74
Net sales
Growth%
Growth%
FY07
35130.80
FY08
43351.10
EBITDA margin
20.28
18.70
19.57
19.46
Other income
237.40
206.10
167.10
230.20
Depreciation
568.40
662.80
747.40
923.60
EBIT
4692.70
4809.70
6294.60
7744.60
EBIT margin
18.95
17.08
17.92
17.86
Interest
2.10
4.40
8.50
16.40
PBT
4690.60
4805.30
6286.10
7728.20
Tax
1594.90
1654.30
2148.00
2387.40
Adjusted PAT
3095.70
3151.00
4138.10
5340.80
1.79
31.33
29.06
12.50
11.19
11.78
12.32
3095.70
3151.00
4138.10
5340.80
Growth %
Net Profit margins
Reported PAT
Equity Capital
964.20
964.20
964.20
964.20
Reserves & Surplus
2577.20
2924.72
3220.10
3769.40
Net Worth
3541.40
3888.92
4184.30
4733.60
Equity Shares
96.42
96.42
96.42
96.42
EPS
32.11
32.68
42.92
55.39
CEPS
38.00
39.55
50.67
64.97
Sales to equity
FY05
25.69
FY06
29.21
FY07
36.44
FY08
44.96
RONW
87.41
81.03
98.90
112.83
Book Value
36.73
40.33
43.40
49.09
Ratios
Particulars
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Past Price movement of the stock
Valuation
We are positive on company’s long term prospects. The company has
earned the trust and respect of every strata of society that it comes in
contact with and is acknowledged amongst India's 'Most Respected
Companies' and amongst the 'Top Wealth Creators of India'. The
Company continuously focuses its efforts to better understand the
changing lifestyles of India and anticipate consumer needs in order to
provide Taste, Nutrition, Health and Wellness through its product
offerings. Presently the company is running at a P/E multiple of
35.47x to its CY09 EPS of Rs.55.39. Based on the positive financial
performance reported by the company, we recommend BUY on the
stock with a medium term price target of Rs.2500.00.
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