Nestle India

On track to deliver 11th straight quarter of double-digit growth – Nestle India

Update on the Indian Equity Market:
On Friday, Nifty ended 0.7% higher at 12,859. The top gainers for Nifty 50 were Bajaj Finserv (+9.3%), Titan (+5.4%), and GAIL (+4.0%) while the losing stocks were Reliance (-3.7%), Adani Port (-1.6%), and IndusInd Bank (-1.5%). Top gaining sectors were Financial Service (+1.7%), IT (+1.4%), and FMCG (+1.2%) while top losing sectors are Media (-0.9%), and Pharma (-0.3%).

Edited excerpts of an interview with Mr Suresh Narayanan, CMD, Nestle India Ltd; dated 19th November 2020 from CNBCTV18:

The Company had a good 2Q with 10.2% growth in the top line. This will be the 11th straight quarter of double-digit growth.

The plant utilisation is well over 90% with some restrictions. Manufacturing levels are growing upwards.
For Nestle India, the core elements of their strategy which are 1) penetration linked volume growth and; 2) a strong focus on innovation and renovation remains constant for the upcoming quarters.

The total Distribution infrastructure has opened & continues to be a positive feature.

The Indian economy in recent times is following the theme of the resurgence of Bharat. The Tier 2, 3 & 4 towns and the rural market are doing extremely well.
Urban India is still facing some operating issues but is growing gradually. For Nestle India, it grew by 0.7% in 2Q while rural grew by 1.7%. In 3Q the Company saw urban growth of 6% & rural growth of 12%.

According to Mr Narayanan, the most unfortunate thing that happened during the pandemic was the meltdown of out of home consumption while an enormous surge is seen in at-home consumption. On a positive note, the out-of-home consumption is gradually opening up, and therefore, he sees some balancing in in-home & out-of-home consumption. Thus, the kind of absurd seen in the consumption in some of the categories will start to normalise.

As part of accessing rural India, the Company is taking 3 major steps: 1) improved access points of distribution. Stocking points have been increased to 12,000 from 8,000-9,000 2 years back, 2) carving out the portfolio making it more relevant for semi-urban & rural consumers, 3) Concentrating & establishing a better value & quality in brands as per the consumer’s needs.

The Company has recalibrated the innovation strategy during the pandemic. The Company has launched 60 new products in the last 2 years and 70% of these are successful.

Four big themes of innovation are coming up going forward: 1) better nutrition, 2) immunity-related innovation, 3) will be introducing ‘touchless’ vending for restaurants, and 4) identifying parts of the portfolio which need tweaking.

The Company may enhance nutrition & immunity brands in line with the theme and may also modify the price-value equation of some products.
The food processing PLI opportunity announced by the government is a huge and fantastic opportunity according to him.

Nestle India expects a CAPEX of Rs 2,600 crores to be completed over the next 3-4 years. Capex includes a new factory in Sanand, Gujarat. A substantial part of the CAPEX goes for the Sanand factory set up. The Company plans to invest in coffee, confectionery & dairy business. The higher capacity will have a huge multiplier effect for Nestle India.

Consensus Estimate: (Source: market screener website)
The closing price of Nestle India Ltd was ₹ 17,400/- as of 20-November-2020. It traded at 77x/ 65x/57x the consensus book value estimate of ₹ 225/267/307 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 16,855/- implies a PE multiple of 55x on FY23E EPS of ₹ 307/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Pandemic has impacted all layers of FMCG – Nestlé

Update on the Indian Equity Market:
On Wednesday, NIFTY ended up 77 pts (+0.7%) at 11,550.
Among the sectoral indices, MEDIA (+2.5%), AUTO (+1.5%) and PVT BANK (+1.8%) were the top gainers while FMCG (-0.2%) and PHARMA (-0.1%) were the losers.
Among the stocks, TATAMOTORS (+8.8%), HEROMOTOCO (+6.4%), and INDUSINDBK (+6.0%) were the top gainers. BHARTIARTL (-2.9%), ULTRACEMCO (-2.2%), and ASIANPAINT (-1.4%) were the top losers.

Pandemic has impacted all layers of FMCG – Nestlé

Edited excerpts of an interview with Mr. Suresh Narayanan, MD & CEO of Nestle with Mint dated 25th August 2020:

• Food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time, Nestlé boss Suresh Narayanan said.
• His comments on consumer sentiment and mobility:
o Covid-19 is not just a health challenge, it is also a humanitarian call to redefine the way humans live, engage and work innovatively.
o Companies that are better placed to react to the new normal will naturally be preferred more by consumers.
o Food companies need to leverage their in-depth knowledge of food habits, nutrition, quality and safety in order to innovate and renovate, and adapt to this new normal.
o They need to respond to new demands, reset defining relationships with consumers and reconsider their product portfolio in the post-covid era to make products healthier, while allowing consumers to make an indulgent choice.
• His outlook for the Indian economy in the short and medium term: India’s economy is showing signs of recovery after withstanding the impact of covid-19. Some sectors were impacted more than others. With easing of restrictions on economic activities, businesses are slowly getting back on track. The government announced several measures to ensure business continuity and sectoral revival.
• When asked what other measures government should take to drive demand, he replied that the government has taken measures to increase liquidity and is hopeful that it will help the economic climate and push up demand. MGNREGA inputs have maintained an income source for a large number of people in rural areas and helped maintain demand. A good monsoon also helps. While we do see a push up in rural demand, as the economy starts opening up, it should create jobs and help build up urban demand as well. A strong focus on infrastructure development will revive the job sector as well as demand.
• Nestlé has witnessed better growth in Tier 2, 3 and 4 cities, semi-urban areas than urban areas during the lockdown. Rural consumption continues to be stronger than urban demand.
• Strong performance was delivered in the e-commerce channel. The demand in all out-of-home consumption channels experienced a sharp decline due to the lockdown. However, Nestlé brands enjoy trust, credibility and strength as far as in-home consumption is concerned. This boosted sales of dairy whitener, milk and coffee, all of which performed well. Maggi witnessed solid growth towards the end of the quarter after initial supply constraints.
• When asked whether consumer preferences will change when things will go normal, he stated that Covid-19 has had a profound impact on the pace, channel, texture and frequency of consumption, across a variety of segments in FMCG. There is a redefinition of out-of-home consumption in favor of brands and formats that are more in-home.
• Channel contexts have undergone sharp changes with a surge in e-commerce. Nestlé witnessed contribution of e-commerce going up significantly, while out-of home has not done well. If you look at e-commerce channels in the US, what took eight years in terms of penetration was achieved in eight weeks. Clearly the e-commerce journey is here to stay and there will be recalibration of channels.
• Quality, safety, nutrition and trust have undergone sharper re-definition and consumers tend to favor tried-and-tested brands and relationships formed herein. A new word has been added to the lexicon of consumer needs, which is “immunity” for self and the family. Categories that are in favor have changed and, together with the economic pandemic that followed Covid-19, a recalibration of the consumer wallets is taking place where essentials are taking precedence over luxuries, however affordable they are.
• When asked how Nestle has prepared to adapt to this change, he commented that their entire innovation funnel is undergoing a change. Every business is recalibrating in the context of newly relevant consumer behaviors that are coming in, that is, what innovations we should go with, what innovation should be left out.
• He is a great believer that in a crisis, one should engage, not disengage. If we disengage, then the consumer has other choices. Going forward, consumers are going to be more digitally active than they were earlier, and food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time. Overall, Nestlé have accelerated digital engagements across key parts of our portfolio and put out innovative digital campaigns to engage with consumers.

Consensus Estimate: (Source: market screener, investing.com websites)

• The closing price of Nestle India was ₹ 16,202/- as of 26-Aug-2020. It traded at 71x/51x/62x the consensus EPS estimate of ₹ 228/269/311 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 16,758/- implies a PE multiple of 54x on FY23E EPS of ₹ 311/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

We are all about Made in India, Made for India– Nestle India

Update on the Indian Equity Market:

On Monday, Nifty closed higher (+2.1%) at 9,067. Within NIFTY50, DRREDDY (+5.9%), HDFC (+5.9%), and M&M (+5.7%) were the top gainers, while INFRATEL (-7.0%), INDUSINDBK (-2.6%) and HEROMOTOCO (-2.3%) were the top losers. All the sectoral indices gained in the session led by PHARMA (+4.1%), FIN SERVICE (+3.1%) and MEDIA (+2.4%).

We are all about Made in India, Made for India– Nestle India

Excerpts of an interview with Mr.Suresh Narayanan, Chairman, & MD –Nestle India published in Business Standard dated 20th May 2020:

  • Nestle has not been able to establish contact with all retail partners yet and does not have the exact count of stock in trade channel. As a result, it is difficult to quantify the business impact caused by the lockdown.
  • Nestle’s manufacturing had come to a halt and is gradually being ramped up to 70% of capacity.
  • On being asked whether the loss in business since April 1 could be at least 30%, Mr. Narayanan said that the impact could be higher than that.
  • Narayanan expressed that PM Modi’s call for swadeshi was misinterpreted by some. Nestle India is all about Made in India, Made for India, and serving India and Indian customers. Nestle is operating in India for the last 108 years, employees 7,200 Indians, works with over 100,000 Indian farmers and contributes ~ Rs 36,000 mn in taxes each year.
  • Narayanan observes that consumer preferences are changing. Many consumers may scale down due to poor consumer sentiment- leading to growth in popular products in essential categories. Some consumers may scale up towards safer/ more hygienic products. The shifting dynamics may lead to some product redundancy.
  • The ongoing reverse migration from urban to rural may boost rural market growth.
  • Nestle is working on its product portfolio to identify brands and products with better prospects. This exercise is also leading to a rescheduling of the innovation pipeline, wherein some projects may no longer be relevant. However, the pace of innovation will not slow down. Nestle has launched 50 products in last 3 years and will continue the trend.
  • Some operational issues still persist. Initial challenges like arranging trucks have become less severe. Obtaining permits (e-passes) for interstate transport is still an issue for Nestle. In terms of retail outlets, only 40%-50% have been activated so far.
  • Distribution in smaller towns and markets is better than large centers.
  • This crisis has accelerated e-commerce as a growth engine. Nestle has seen 90% jump in business through e-commerce (from 1.5% share of revenue a year ago to 3% now).
  • Narayanan expressed that he plans to be very conservative in terms of reopening of offices. The branch offices will remain shut for a few more weeks. Only the head office is functioning with a dozen employees vs. the capacity of 600. Even field executives have been allowed to operate only in green zones.

Consensus Estimate: (Source: market screenerand investing.com websites)

  • The closing price of NESTLEIND was ₹ 16,303/- as of 20-May-2020. It traded at 70.8x/ 59.5x the consensus EPS estimate of ₹ 230/ 274 for CY20E/ CY21E respectively.
  • Consensus target price of ₹ 16,464/- implies a PE multiple of 60.1x on CY21E EPS of ₹ 274

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”