27 February 2021
Update
| Sector:
Consumer
Nestlé India
BSE SENSEX
49,100
S&P CNX
14,529
CMP: INR16,098
TP: INR17,500 (+9%)
Neutral
Sustained share of new products, increasing rural focus
Nestlé (NEST) held an analyst call to provide an update on the business.
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
NEST IN
96
1552.1 / 21.1
18821 / 12589
-9/-26/-24
2601
37.2
Financials Snapshot (INR b)
Y/E Dec
2020 2021E
133.5 150.1
Net Sales
EBITDA (INR b)
32.2 36.6
Net Profit
21.0 24.5
217.4 253.7
EPS
EPS Gr. (%)
5.2 16.7
BV/Share (INR) 209.4 226.5
106.5 116.4
RoE (%)
RoCE (%)
110.2 120.4
P/E (x)
74.0 63.5
76.9 71.1
P/BV (x)
Payout
92.0 92.6
2022E
172.8
42.1
28.1
291.8
15.0
246.5
123.3
127.1
55.2
65.3
92.5
Shareholding pattern (%)
As On
Dec-20 Sep-20 Dec-19
Promoter
62.8
62.8
62.8
DII
7.8
8.9
9.0
FII
12.8
11.5
12.1
Others
16.7
16.8
16.2
FII Includes depository receipts
Milk & Nutrition and Chocolates & Confectionary continued their healthy growth
momentum seen in recent years. Though the 11.4% growth in Prepared Dishes
(Maggi) in CY20 was healthy, it was lower than our earlier estimate due to in-home
consumption getting a boost during COVID. Performance was likely affected by a
slower resumption in manufacturing as Nestlé does not outsource production.
Beverage sales were flattish in CY20 due to significant out of home (OOH)
component, which is only now normalizing.
Contribution of newer products to sales remained healthy at 4.3% in CY20, which is
creditable because the management’s focus was more on core products amid the
pandemic. With 40-50 products under development, the launch pipeline is likely to
be strong again going forward.
The management underlined the increasing opportunity from rural India. From 7,000
villages in CY16, NEST is now present in 89,000 villages. The management is targeting
120,000 villages by CY24. At 25%, share of rural in Nestlé India’s sales is lower than
peers.
The management also provided additional details on the INR26b capex plan to be
spread over 3-4 years. Capacity expansion in Maggi Noodles in Sanand will be part of
the first phase in CY21, followed by Coffee in Nanjungud and Chocolate investment in
Ponda and Tahliwal. Since the expansion will be in phases, it does not expect any
significant impact of the capex on operating margin.
Valuation and view: We maintain our Neutral rating on the stock. While the
structural investment case is strong, valuations at 55x CY22E EPS do not offer any
material upside potential from a one-year perspective.
Interesting statements by Mr. Suresh Narayanan, CEO, that have a bearing
on the company’s growth prospects:
Stock Performance (1-year)
Nestle India
Sensex - Rebased
21,500
19,000
16,500
14,000
11,500
9,000
The CEO believes that the ‘Time
for Nestlé has come’
given the category
opportunity and company initiatives.
He said, “We
can be delayed but cannot be denied”
in their quest for taking
advantage of this opportunity.
‘India
is seen as a key opportunity in the Nestlé group.’
We note that this was
not always the case in the past.
‘Convergence
of aspiration across rural and urban is happening much faster
than expected.’
This is an encouraging sign for increasing rural growth
opportunity, given that it constitutes only 25% of sales.
‘Welcome
and respect the competition, but do not fear them.’
This indicates
the confidence that NEST has developed, given the stellar run in recent years.
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com)
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@motilaloswal.com) /
Kaiwan Jal Olia
(Kaiwan.O@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.