Tag - Crisis

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.”

IT industry adopting new methods to tackle the crisis: C P Gurnani Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra

Update on the Indian Equity Market:

On Friday, NIFTY ended up 170 pts down (-2.06%) at below 8,100 level as ratings downgrade for the banking sector, due to the impact of the crisis and ensuing stressed asset concerns, impacted the financial stocks.

Among the sectoral indices, PHARMA (4.8%), and FMCG (0.7%) were the only gainers while PVT BANK (-5.5%), BANK (-5.3%) and FIN SERVICE (-4.3%) were the top losers. SUNPHARMA (+9.6%), CIPLA (+8.3%) and ITC (+6.7%) were the top gainers. AXISBANK (-8.9%), INDUSINDBANK (-8.3%) and ICICIBANK (-7.4%) were the top losers.

IT industry adopting new methods to tackle the crisis: C P Gurnani

Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra

India has spent only 0.3 per cent (of the GDP) and the World Bank has suggested the countries to spend up to 6-7 per cent said Mr Gurnani.

The world is heading towards a ‘new normal’ due to the current crisis, by almost forcing businesses to work from home, the IT industry has learnt a lot from this event.

Edited excerpts of an interview C P Gurnani, Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra; dated 31st March 2020:

His views on the current crisis and its impact on IT industry – He is of the opinion that India has been very lucky. Even today, only ~ 1,100 cases though it’s true that India’s testing infrastructure is not as strong as the US. Everyone is also praying that with rising temperature, the propagation of the virus will be reduced. So, he is not expecting further lockdown but probably a new normal will be kicked in. The new normal is, people will keep safe distance and they will be a lot more hygienic than ever before.

When asked what the industry as a whole has learnt, he divided this into three chapters. The first one is the period ‘before the crisis’, second is ‘during the crisis’ and third is ‘after the crisis’. He said that everyone knew that they have to become healthy, but had been ignoring it. Everyone knew that they have to reduce pollution. During the pandemic, many things have become reality. It was an opportunity for Tech Mahindra and others to take those decisions, which were never taken before. Tech M have now introduced many collaborative tools and launched workstation as a service, remote diagnostics networks, content delivery platforms and omni-channel retail experiences and so on. Many of these platforms were ready but were not launched yet, but now it is becoming a reality.

When asked about the challenges in the ‘post crisis’ environment he stated that the reality is the government agencies have now officially declared recession. India has spent only 0.3 per cent (of the GDP) and the World Bank has suggested the countries to spend up to 6-7 per cent. He thinks there is headroom to kick-start the economy. Consumers’ confidence comes back very fast. Infrastructure spending will increase the cash flow. Though the B2B businesses will take little longer (to come back to shape), he thinks the doomsayers are being very negative. It is less than a year cycle of recovery.

His comments on hospitality, travel and aviation sector: Hospitality sector is not a big one for Tech M as it contributes less than 3 per cent of the total revenue. Travel and hospitality have also seen these challenges in the past. Besides, this sector has always been the first one to get impacted. But the sector also bounces back.

When asked about the benefit to Tech M from the Telecom Vertical as the company has a good exposure to this sector, he said that he is not denying it but everyone is in crisis. Keeping the human capital intact and lights on are important themes.

He was asked about the sales team performance, whether they are still chasing for deals on ground or stopped. He replied that everyone is talking to everybody. No conversation has stopped. In fact, the number has increased. However, we need to remember that the sales team are not talking to organizations, but only to individuals. Clients are not having their board meetings or committee meeting now. Everyone is on a fire-fighting mode. Overall, he is proud of the associates for the way they have rallied. Offices in the Philippines and India are not working, but none of Tech M’s customers has been impacted.

He also added that almost 90 per cent or their employees are working from home. The remaining go to office because of the data security norms. So, the density is less than 6 per cent in the offices. Work from home has actually helped in enhancing the overall productivity. They are using various tools to measure the productivity.

His views on laying off staff to withstand the business losses in IT industry: Each company has its own strategy. What Tech M have conveyed to their people is that the company would rather offer advances to their employees who earn less than ₹ 35,000 per month. They will offer this to temporary or even sub-contract workers, as Tech M understands they require their support a lot more.

With regards to buy back, he said that looking at the current scenario he feels it will be unfair at this point to take advantage and he won’t recommend it to the board.

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

The closing price of Tech M was ₹ 524/- as of 3-April-20. It traded at 10.4x/ 9.6x/ 8.6x the consensus EPS estimate of ₹ 49/ 53/ 59 for FY20E/ FY21E/ FY22E respectively.

Consensus target price of ₹ 793/- implies a PE multiple of 13.4x on FY22E EPS of ₹ 59/-