BSE SENSEX
31,596
S&P CNX
9,857
Nestle India
CMP: INR6,595
TP: INR6,160(-7%)
Upgrade to Neutral
Silver linings appear among dark clouds
Upgrading from Sell to Neutral
24 August 2017
Update
| Sector:
Consumer
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
NEST IN
96.4
7062 / 5701
-1/-6/-16
636
9.9
271
37.2
We attended NEST’s analyst meet. Our key takeaways:
Financials Snapshot (INR b)
2016 2017E 2018E
Y/E Dec
Net Sales
91.6
98.2 109.8
EBITDA (Rs b)
18.0
17.7
20.6
Net Profit
11.4
11.1
12.9
EPS
118.0 115.1 133.6
EPS Gr. (%)
-1.6
-2.5
16.2
BV/Share (Rs)
312.6 336.0 365.8
RoE (%)
39.0
35.5
38.1
RoCE (%)
38.8
35.2
37.8
P/E (x)
55.9
57.3
49.4
P/BV (x)
21.1
19.6
18.0
Shareholding pattern (%)
Jun-17 Mar-17 Jun-16
As On
Promoter
62.8
62.8
62.8
DII
7.2
7.5
6.0
FII
12.6
12.5
14.3
Others
17.5
17.2
17.0
FII Includes depository receipts
Stock Performance (1-year)
Nestle India
Sensex - Rebased
8,100
7,600
7,100
6,600
6,100
5,600
New launches have met with good response; contributed 2.8% of sales in 1HCY17.
Mantras that the company is chanting involve volume growth, flexibility of working
and simplification.
Volume growth is yet to recover in Milk & Nutrition, but Beverages has witnessed
uptick after a long time and Maggi did well off a low base. New products are also
supporting volume growth.
Advertising growth – not shared earlier – remains disappointingly low at 6% YoY in
1HCY17, despite 43 products launched between January 2016 and May 2017.
With reasonable success in new launches, signs of pick-up in volumes in a couple of
new launches, and limited downside as we roll forward to September 2019
numbers, we upgrade our rating to Neutral.
GST transition smooth; June quarter sales impacted by around 2%, less than
peers due to low wholesale proportion
NEST had to interact with 3,500 suppliers and 1,600 distributors one-on-one to
make them understand the process of invoicing under GST. It also had external
experts in these meetings, guiding channel partners. Invoicing started on day-3,
ensuring smooth transition.
Dairy Whiteners, Sauces and Infant Cereals saw favorable rate of GST
compared to earlier indirect tax incidence. The company passed on the
benefits of low GST rates to customers.
The June month was negatively impacted by softer trading. Quarterly effect
was around 2% of sales. For NEST, wholesale trade and rural share are lower
than peers; therefore, the impact was lower.
GST rates are higher for Confectionary and Coffee. The company has not yet
taken pricing action.
There is no shift apparent from the unorganized to the organized segment in
the two months after GST implementation.
Mantras the company is chanting involve volume growth, flexibility of working,
and simplification
Consumer-led growth:
Double-digit volume growth and consumer insight will
lead growth. NEST is seeking to launch new products in each category:
“Won’t
know what works until we try!”
Winning edge:
(a) Aiming to be fast, focused and flexible in both thoughts and
action, (b) Seeking to embrace powerful ways of working; and enable,
empower, engage and energize colleagues.
Simplify to energize:
Targeting 30-40% process reduction, and 50% reduction
in number of meetings; zero tolerance on non-compliance.
These are largely things the company has been chanting for nearly two years
now, but has only started to deliver to some extent this year.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Vishal Punmiya – Research Analyst
(Vishal.Punmiya@MotilalOswal.com); +91 22 6129 1547

Nestle India
Focusing on sustainable growth
For individuals and families:
Encouraging nutrition focus and breastfeeding
philosophies.
For communities:
Access to water and sanitation, safe and hygienic food.
For the planet:
Reducing water usage in agriculture; recycling of waste.
Why is food fortification a big deal?
In India, (a) 70% children have iron deficiency, (b) 65% have vitamin-A
deficiency, and (c) 45% have zinc deficiency.
Currently, only 2-5% of food products in India meet these nutrition
requirements.
Adding these to existing products requires technology and food
expertise, as any added mineral changes organoleptic substantially.
The company has already added iron to
Maggi
noodles and
Maggi
Masala-e-
Magic. It is looking to launch
Milo
RTD with 40% less sugar and
Ceregrow
fully-
fortified foods for kids. Later, it will also have fortified milk under the ‘A+’ brand,
and many more such products.
Response to new products has been encouraging
Between January 2016 and May 2017, the company has launched 43 products
and SKUs.
Of these, 14 were value-up products, 22 were mainstream products,
and only seven were popularly positioned products (PPP). PPP is only an entry
point and not a core focus area.
New products are doing well. Their contribution has grown gradually from 0.7%
of sales in 1HCY16, to 2.2% of sales in 2HCY16, and to 2.8% sales in 1HCY17.
What has done well?
In Chocolates,
Munch Nuts
and
Kit Kat Duo
have done well.
In Prepared Dishes,
Maggi Hot Heads
and
Maggi No Onion No Garlic
have done
well. Even newly-launched
Maggi Masalas of India
has done well in the limited
time since launch.
Milo
and
Nescafe
ready-to-drink (RTD) have also done well.
What has not done well?
Everyday Masala Fusion
has not done as well. The
company is looking to restage
Nescafe Insta-Filter,
as customers were confused
about the product proposition.
What’s new on products of late?
Re-launched
Maggi Atta and Oats
noodles, with breakfast positioning and
nutrition proposition.
Re-launch of
Milkybar
in process. Core benefit is to cut sugar and increase
amount of milk.
Grekyo
yogurt with litchi.
In the process of launching fortified milk (A+).
1HFY17 additional highlights not provided in results (company does not have post-
results call)
Exports were down 5.7% in 1HCY17; export volumes were up 2.4%.
Domestic sales grew 9.3%, almost entirely volume-led. Base was affected by
Maggi
issue.
Even taking into account low base of
Maggi,
the company clarified that of the
9.3% sales growth,
Maggi
recovery contributed 2.8% growth, new products
2.4%, and rest of the portfolio 4.1%.
2QCY17 saw 59.9% market share for
Maggi.
There has been plateauing off of
gains in the last 2-3 quarters. Noodles category has not recovered to earlier
levels and
Maggi
has not recovered to its pre-crisis market share of 75-80%.
24 August 2017
2

Nestle India
Advertising increase remains disappointingly low at 6% YoY in 1HCY17, despite
43 products launched between January 2016 and May 2017. NEST does not
share this cost item in the results.
Milk and Nutrition (largest business segment): Sales and volumes disappointed
(48.5% of total 1HCY17 sales), with 3.4% value growth and 0.2% volume decline.
Volume decline has been a multi-year phenomenon in this segment.
Prepared dishes:
Maggi
sales grew 17.9% by value and 16.1% by volume, off a
low base.
Maggi
was re-launched only in November 2015, and was gradually
inching up on market share until July-August, last year. Prepared dishes were
27.6% of sales in 1HCY17.
Chocolates and Confectionary was 13% of sales in 1HCY17. Sales growth was
10.9%, with 5.7% volume growth. This is another category where volumes have
not seen growth for many years, and are in fact, close to CY08 levels.
Beverages were 10.9% of sales in 1HCY17 and showed healthy mid-teens sales
growth, with over 20% volume growth. RTD launches of
Milo
and
Nescafe
have
done well. Overall,
Nescafe
did well after many years. This is another category
where volumes have declined consistently year after year.
Gross margins were down by around 160bp YoY. Margins were impacted
because commodity costs were not totally passed on to customers. Commodity
costs increased 270bp, of which the company mitigated 110bp through
realization and mix.
Price increases could not be taken because of weak environment and
competition. Management is looking for price increases in a couple of months, if
the environment becomes favorable.
Milk prices have hardened in the last three quarters. This has been the case with
green coffee as well as sugar.
Excise duty is higher due to Pantnagar plant benefits expiring, and mix of higher
excise products in 1HCY17. Samalkha Unit-2 has also completed five years on
March 31, 2017, and is off 100% benefits. For the next five years, there will be
30% benefits.
Other takeaways
The company reaches over 4m outlets in terms of total coverage. Direct reach is
1.5m outlets. The management did not give direct or total reach expansion
targets.
Digital was less than 5% of A&P five years ago. Now, in many categories, it
ranges from 15% to 50% across many brands.
Silver linings seen; upgrading from Sell to Neutral on limited downside
There is no change to our EPS forecasts. Silver linings are appearing amidst
gloomy clouds in the form of new products and possible volume growth
recovery, albeit off a low base. Opportunity in the Indian packaged food space is
massive, and while NEST has proven itself inept for nearly a decade at utilizing
this opportunity, there is some evidence now that the company could get things
right now, though the path would still be challenging. As we roll forward to
September 2019, the downside is also limited to 7% at the derived target price
of INR6,160. We maintain our target P/E at 25% discount to the 3-year average
P/E multiple.
24 August 2017
3

Nestle India
Key Charts and Tables
Exhibit 1: Size of play
Source: Company, MOSL
Exhibit 2: Nestle has leadership position in 5 out of 9 categories
Source: Company, MOSL
24 August 2017
4

Nestle India
Exhibit 3: Nestle India launched 43 new products from Jan’16-May’17
Source: Company, MOSL
Exhibit 4: Some of the recent new launches
Source: Company, MOSL
24 August 2017
5

Nestle India
Exhibit 5: Commodity cost were up 270bp YoY in 1HCY17
Exhibit 6: Nestle India’s commodity price index
Source: Company, MOSL
Source: Company, MOSL
Exhibit 7: Financial Overview of Nestle India
INR m
Total Revenues
Raw Material Consumed
Milk/SMP
Raw coffee/Green Coffee
Sugar
Wheat flour
Vegetable Oils
Packaging Material
Others
Gross Profit
Employee Benefit Expense
Other Expenses
Power and Fuel
Repairs
Advertising and Sales Promotion
Freight and Transport
Royalty
Others
EBITDA
Less: Interest Expense
Less: Depreciation
Add: Other Income
Profit before Tax (PBT)
Tax
Profit after Tax (PAT)
2,958
754
3,226
3,525
2,832
4,416
15,528
51
1,533
509
14,452
4,264
10,189
13.6
19.2
3.9
1.0
4.3
4.7
3.8
5.9
20.7
3,709
930
3,559
3,842
3,173
4,912
18,257
266
2,772
633
15,852
4,847
11,006
13.2
19.0
4.5
1.1
4.3
4.6
3.8
5.9
22.0
3,854
962
3,955
4,374
3,396
5,379
19,804
365
3,300
1,222
17,362
5,609
11,753
12.9
19.1
4.3
1.1
4.4
4.8
3.7
5.9
21.9
3,843
1,031
4,455
4,795
3,863
5,603
20,527
142
3,375
1,359
18,368
5,897
12,472
12.7
18.6
3.9
1.1
4.5
4.9
3.9
5.7
20.9
2,220
1,056
5,252
3,870
3,342
5,343
15,946
33
3,473
1,621
14,062
2,504
11,558
14.1
17.2
2.7
1.3
6.5
4.8
4.1
6.6
19.6
2,328
1,213
5,670
4,556
3,980
5,960
17,958
35
3,536
2,139
16,526
5,150
11,376
12.3
Source: Company, MOSL
17.9
2.5
1.3
6.2
5.0
4.3
6.5
19.6
9,044
3,091
1,863
3,106
3,235
5,907
9,705
38,957
5,717
12.1
4.1
2.5
4.1
4.3
7.9
13.0
52.0
7.6
9,215
3,257
2,067
3,698
3,261
6,300
9,965
45,259
6,877
11.1
3.9
2.5
4.5
3.9
7.6
12.0
54.5
8.3
8,281
3,714
1,961
4,306
3,373
7,034
12,556
49,396
7,672
9.1
4.1
2.2
4.8
3.7
7.8
13.9
54.5
8.5
11,202
3,783
1,778
4,468
3,509
7,582
12,918
52,823
8,706
11.4
3.9
1.8
4.6
3.6
7.7
13.2
53.9
8.9
9,309
3,718
1,387
1,914
1,997
5,483
10,882
46,544
9,516
11.5
4.6
1.7
2.4
2.5
6.8
13.4
57.3
11.7
8,848
3,239
1,753
3,485
2,859
6,632
11,981
52,796
11,132
9.7
3.5
1.9
3.8
3.1
7.2
13.1
57.6
12.2
CY11
%
CY12
%
CY13
%
CY14
%
CY15
%
CY16
%
74,908 100.0 83,023
100.0 90,619 100.0
98,063 100.0 81,233
100.0 91,593 100.0
24 August 2017
6

Nestle India
Exhibit 8: Nestle’s segment-wise performance
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Volume (MT)
Milk Products
107,736 118,651 134,142 144,397 147,984 140,386 138,772 135,591 131,980 129,963
Beverages
24,107 24,114 23,369 26,458 26,692 25,353 27,717 24,673 22,130 22,411
Prepared Dishes & Cooking Aids
98,259 127,835 155,555 193,494 219,041 236,554 245,443 254,553 103,138 178,467
Chocolate & Confectionery
35,752 40,200 44,116 53,483 52,678 47,745 46,718 41,080 33,083 35,615
Total
265,854 310,800 357,182 417,832 446,395 450,038 458,650 455,897 290,331 366,456
Volume (as a % of total)
Milk Products (MT)
41%
38%
38%
35%
33%
31%
30%
30%
45%
35%
Beverages (MT)
9%
8%
7%
6%
6%
6%
6%
5%
8%
6%
Prepared Dishes & Cooking Aids (MT)
37%
41%
44%
46%
49%
53%
54%
56%
36%
49%
Chocolate & Confectionery
13%
13%
12%
13%
12%
11%
10%
9%
11%
10%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Volume Growth (%)
Milk Products
5.4%
10.1%
13.1%
7.6%
2.5%
-5.1%
-1.1%
-2.3%
-2.7%
-1.5%
Beverages
7.9%
0.0%
-3.1%
13.2%
0.9%
-5.0%
9.3%
-11.0% -10.3%
1.3%
Prepared Dishes & Cooking Aids
24.8%
30.1%
21.7%
24.4%
13.2%
8.0%
3.8%
3.7%
-59.5%
73.0%
Chocolate & Confectionery
17.6%
12.4%
9.7%
21.2%
-1.5%
-9.4%
-2.2%
-12.1% -19.5%
7.7%
Total
13.8%
16.9%
14.9%
17.0%
6.8%
0.8%
1.9%
-0.6%
-36.3%
26.2%
Weighted average volume growth
14.4%
17.9%
15.3%
17.5%
7.2%
1.3%
2.0%
-0.3%
-25.3%
35.8%
Price (INR/Kg)
Milk Products
146
163
172
192
226
275
293
337
354
363
Beverages
299
332
344
340
400
443
478
543
604
578
Prepared Dishes & Cooking Aids
79
82
86
89
98
103
110
116
127
129
Chocolate & Confectionery
159
169
175
182
209
245
275
305
336
333
Total
137
144
146
153
172
191
205
222
290
259
Price Growth (%)
Milk Products
16.3%
11.7%
5.4%
11.6%
17.8%
21.4%
6.7%
15.0%
4.9%
2.5%
Beverages
10.6%
10.9%
3.6%
-1.2%
17.8%
10.6%
7.9%
13.7%
11.2%
-4.3%
Prepared Dishes & Cooking Aids
4.6%
3.5%
4.3%
3.9%
10.3%
4.4%
7.0%
5.8%
9.5%
1.1%
Chocolate & Confectionery
6.1%
6.3%
3.5%
4.3%
14.4%
17.3%
12.4%
10.8%
10.1%
-1.0%
Total
8.9%
4.9%
1.6%
4.4%
12.6%
10.9%
7.2%
8.6%
30.7%
-10.8%
Weighted average price growth
11.1%
8.8%
4.6%
6.6%
15.2%
14.6%
7.7%
11.6%
7.3%
0.8%
Gross Sales (INR m)
Milk Products
15,756 19,388 23,113 27,763 33,510 38,594 40,712 45,752 46,694 47,137
Beverages
7,219
8,009
8,042
8,994
10,684 11,227 13,241 13,398 13,360 12,949
Prepared Dishes & Cooking Aids
7,811
10,519 13,350 17,250 21,545 24,302 26,982 29,613 13,141 22,989
Chocolate & Confectionery
5,686
6,795
7,719
9,759
10,997 11,696 12,864 12,532 11,109 11,843
Total
36,472 44,711 52,224 63,766 76,736 85,819 93,799 101,295 84,304 94,917
Gross Sales (as a % of total)
Milk Products
43%
43%
44%
44%
44%
45%
43%
45%
55%
50%
Beverages
20%
18%
15%
14%
14%
13%
14%
13%
16%
14%
Prepared Dishes & Cooking Aids
21%
24%
26%
27%
28%
28%
29%
29%
16%
24%
Chocolate & Confectionery
16%
15%
15%
15%
14%
14%
14%
12%
13%
12%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Gross Sales Growth (%)
Milk Products
22.6%
23.0%
19.2%
20.1%
20.7%
15.2%
5.5%
12.4%
2.1%
0.9%
Beverages
19.4%
10.9%
0.4%
11.8%
18.8%
5.1%
17.9%
1.2%
-0.3%
-3.1%
Prepared Dishes & Cooking Aids
30.6%
34.7%
26.9%
29.2%
24.9%
12.8%
11.0%
9.7%
-55.6%
74.9%
Chocolate & Confectionery
24.8%
19.5%
13.6%
26.4%
12.7%
6.4%
10.0%
-2.6%
-11.4%
6.6%
Total
23.9%
22.6%
16.8%
22.1%
20.3%
11.8%
9.3%
8.0%
-16.8%
12.6%
Source: Company, MOSL
24 August 2017
7

Nestle India
Exhibit 9: New launches over the years; accelerated in last 20 months
Year
No. of
launches
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
CY11
4
Nestle a+ Milk
Nestle a+ Dahi
Maggi Dumdaar
Noodles
Nestle Dark
Chocalate
CY12
9
Nestle Baby & Me
Cerelac Shishu
Aahar
Renovation of
Lactogen
Renovation of
Cerelac
Maggi Healthy
Soups
Nestle Kitkat Dark
Crisp Wafer
Fingers
Munch Rollz
Wafer Tube
Relaunch of
Nescafe Classic in
a unique jar
Sunrise Strong
CY13
6
NAN PRO 1
Maggi Hungrooo
Maggi Magical
Masala Noodles
Nestle Munch 4*4
Nestle Munch
convenient share
bag pack
Nestle Alpino
CY14
7
Maggi Oats
Noodles
Nestlé KitKat
Senses Milk
Nestlé KitKat
Senses Dark
Nestlé KitKat
Senses Extra
Smooth
Nestle Masala
Buttermilk
Nestle Lassi
NAN Lo-Lac
CY15
3
CY16
19 (39 including
variants and re-
launches)
CY17 (YTD)
4
Nestle a+ Grekyo-
Relaunched Maggi Maggi Hot Heads 4
Blueberry Greek
Noodles
variants
Yogurt
Maggi No Onion Nestle a+ Grekyo-
Munch Nuts
No Garlic Masala Greek Style Curd
Maggi Hot Heads Maggi Masalas of
Cerelac Stage 5
Cuppa Noodles India : 4 variants
Maggi Cuppa
Masala
Maggi Cuppa
Chilly Chow
Maggi Cup-a-
licious Soups 6
variants
Nestle a+ Grekyo 4
variants
Nestle Everyday
Masala Fusion
Dairy Whitener 6
variants
Nescafe RTD 3
variants
Ceregrow
Nestle a+ Pro-
grow
Renovation of
Cerelac with Iron
Nescafe Sunrise
Insta-filter
Nestea Iced Tea 3
variants
Nescafe Latte
Kitkat Duo
Nestle Munch Trio
Barone Charge
New Alpino
Source: Company, MOSL
Milo Ready to
drink
24 August 2017
8

Nestle India
Story in chart
Exhibit 10: Sales grew 12.6% in CY16 due to Maggi issue in
base
Price growth (%)
23.9 22.6
22.1 20.3
16.8
Gross sales growth (%)
12.6
52.0
51.9 51.3 52.3
51.1
22.0 21.9
19.9 20.0 20.2 20.0
(16.8)
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Source: Company, MOSL
20.7
20.9
19.6 19.6
Exhibit 11: EBITDA margin remained flat YoY in CY16
Gross Margin (%)
54.5
EBITDA Margin (%)
57.3 57.6
54.5 53.9
11.8
9.3
8.0
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Source: Company, MOSL
Exhibit 12: Segmental volume contribution
Milk Products/ Nutrition
Prepared Dishes
Beverages
Chocolate & Conf.
9.0
11.4
9.7
Exhibit 13: Segmental sales contribution
Milk Products/ Nutrition
Prepared Dishes
Beverages
Chocolate & Conf.
13.4 12.9 12.4 12.8 11.8 10.6 10.2
35.5
37.0 41.1 43.6 46.3 49.1
48.7
52.6 53.5 55.8
7.6
9.1 7.8 6.5
6.1
6.3 6.0 5.6 6.0
5.4
45.5
40.5 38.2 37.6 34.6 33.2 31.2
35.5
30.3 29.7
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Source: Company, MOSL
15.6 15.2 14.8 15.3 14.3 13.6 13.7 12.4 13.2 12.5
15.6 24.2
21.4 23.5 25.6 27.1 28.1 28.3 28.8 29.2
15.8
13.6
19.8 17.9 15.4 14.1 13.9 13.1 14.1 13.2
43.2 43.4 44.3 43.5 43.7 45.0 43.4 45.2
55.4 49.7
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Source: Company, MOSL
Exhibit 14: Milk Products grew just 1% in CY16
Volume Growth (%)
Sales Growth (%)
23.0
22.6
19.2 20.1 20.7
Price Growth (%)
Exhibit 15: Prepared Dishes grew 74.9 in CY16 led by Maggi
issue in base
Volume Growth (%)
Sales Growth (%)
30.6
34.7
26.9
0.9
29.2 24.9
Price Growth (%)
74.9
15.2
5.5
12.4
2.1
12.8 11.0
9.7
(55.6)
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Source: Company, MOSL
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Source: Company, MOSL
24 August 2017
9

Nestle India
Exhibit 16: Beverages declined 3.1% in CY16
Volume Growth (%)
Sales Growth (%)
19.4
10.9
0.4
11.8
5.1
1.2
(0.3)
18.8
Price Growth (%)
17.9
24.8
Exhibit 17: Chocolates grew 6.6% in CY16
Volume Growth (%)
Sales Growth (%)
26.4
19.5
13.6
12.7
Price Growth (%)
6.4
10.0
(2.6)
(11.4)
6.6
(3.1)
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Source: Company, MOSL
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Source: Company, MOSL
Exhibit 18: Nestle India P/E (x)
P/E (x)
71.0
57.0
43.0
29.0
15.0
39.6
28.8
20.7
50.5
Avg (x)
Max (x)
61.2
54.7
Exhibit 19: Consumer P/E (x)
P/E (x)
45.0
37.0
29.0
21.0
13.0
36.5
29.8
23.1
17.1
39.1
Avg (x)
Max (x)
41.2
Source: Company, MOSL
Source: Company, MOSL
24 August 2017
10

Nestle India
Exhibit 20: Valuation Matrix
Company
Consumer
Asian Paints
Britannia Inds.
Colgate-Palm.
Dabur India
Emami
Godrej Cons.
GlaxoSmith C H L
Hind. Unilever
ITC
Jyothy Lab.
Marico
Nestle India
P & G Hygiene
Page Industries
Parag Milk
Pidilite Inds.
United Breweries
United Spirits
Retail
Jubilant Food.
Titan Company
Neutral
Buy
Buy
Neutral
Buy
Neutral
Sell
Buy
Neutral
Neutral
Neutral
Neutral
Neutral
Buy
Neutral
Neutral
Neutral
Neutral
Sell
Neutral
1,136
4,218
1,093
300
1,074
915
5,283
1,179
282
376
316
6,595
8,068
17,220
240
828
809
2,568
1,391
607
1,200
4,660
1,285
315
1,310
995
4,500
1,360
280
395
355
6,160
8,800
19,600
245
810
875
2,525
850
565
6
10
18
5
22
9
-15
15
-1
5
13
-7
9
14
2
-2
8
-2
-39
-7
1,094
510
295
526
246
616
225
2,570
3,429
67
407
639
265
192
20
418
213
359
91
540
17.1
8.0
4.6
8.2
3.8
9.6
3.5
40.1
53.5
1.1
6.4
10.0
4.1
3.0
0.3
6.5
3.3
5.6
1.4
8.4
8.7
7.3
-5.7
1.9
4.5
12.4
0.9
1.9
9.4
175.7
12.1
-1.6
2.3
15.0
-46.4
6.7
-23.0
87.1
-32.1
18.5
5.6
15.8
15.2
6.7
1.4
14.0
1.3
16.8
10.4
-12.6
8.5
-2.5
14.0
23.4
152.6
7.9
15.8
29.1
48.0
17.6
19.5
22.6
21.7
18.3
23.1
14.6
15.2
19.2
11.4
13.2
20.9
16.2
16.1
35.2
37.0
14.0
48.7
49.3
40.0
18.2
54.1
57.2
51.5
41.4
40.5
48.4
33.8
60.0
33.5
33.5
50.2
55.9
60.7
72.1
66.5
49.5
93.0
96.0
139.0
67.3
51.2
49.4
44.7
38.8
39.9
42.5
33.4
51.4
30.4
38.3
46.3
57.3
53.2
58.4
26.3
45.9
80.3
74.4
93.9
57.2
42.9
40.3
36.7
32.8
32.4
37.1
29.0
43.1
27.2
33.8
38.3
49.3
45.8
43.2
19.2
40.2
54.0
49.9
67.1
48.4
28.5
36.9
50.4
28.4
35.8
24.6
22.2
65.6
23.5
21.1
36.7
39.0
39.3
40.0
6.0
28.2
10.4
21.3
8.2
20.6
0.8
0.0
0.9
0.8
0.8
0.6
1.0
1.4
2.0
1.6
1.0
1.0
4.0
0.5
0.0
0.6
0.1
0.0
0.2
0.4
Reco
CMP
(INR)
Target Price
(INR)
Mkt Cap
EPS Growth YoY (%)
FY17 FY18E FY19E FY17
P/E (x)
FY18E FY19E
RoE
(%)
FY17
Div.
(%)
FY17
Upside
(INR B) (USD B)
(%)
Source: Company, MOSL
24 August 2017
11

Nestle India
Financials and Valuations
Income Statement
Y/E December
Net Sales
Change (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Ch.
Other Inc.- Rec.
PBT
Change (%)
Margin (%)
Tax
Tax Rate (%)
Adjusted PAT
Change (%)
Margin (%)
Non-rec. (Exp)/Inc.
Reported PAT
Balance Sheet
Y/E December
Share Capital
Reserves
Net Worth
Loans
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investments
Current
Non-current
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Account Payables
Other Liabilities
Provisions
Net Curr. Assets
Def. Tax Liability
Appl. of Funds
E: MOSL Estimates
2014
98,063
8.2
77,536
20,527
3.7
20.9
3,375
142
1,359
18,368
5.8
18.7
5,897
32.1
12,472
6.1
12.7
625
11,847
2014
964
27,408
28,372
196
28,568
50,090
18,323
31,766
2,448
8,118
5,074
3,045
15,863
8,441
991
4,458
1,972
27,400
7,287
4,096
16,017
-11,537
-2,227
28,568
2015
81,233
-17.2
65,287
15,946
-22.3
19.6
3,473
33
1,621
14,062
-23.4
17.3
2,504
17.8
11,558
-7.3
14.2
5,925
5,633
2015
964
27,214
28,178
177
28,356
51,174
22,195
28,979
2,308
13,249
9,831
3,418
16,269
8,208
784
4,996
2,281
30,720
7,435
4,659
18,625
-14,451
-1,729
28,356
2016
91,593
12.8
73,634
17,958
12.6
19.6
3,536
35
2,139
16,526
17.5
18.0
5,150
31.2
11,376
-1.6
12.4
2,111
9,265
2016
964
29,173
30,137
332
30,469
52,600
25,305
27,295
1,882
17,494
12,750
4,743
21,390
9,432
979
8,800
2,179
36,049
7,992
5,128
22,929
-14,659
-1,542
30,469
2017E
98,214
7.2
80,530
17,684
-1.5
18.0
3,414
38
2,326
16,558
0.2
16.9
5,464
33.0
11,094
-2.5
11.3
972
10,121
2017E
964
31,431
32,395
351
32,746
54,100
28,720
25,380
1,882
19,406
14,663
4,743
25,864
10,730
1,120
11,149
2,865
38,079
8,538
4,088
25,453
-12,216
-1,706
32,746
2018E
109,775
11.8
89,188
20,587
16.4
18.8
3,745
39
2,428
19,232
16.2
17.5
6,346
33.0
12,885
16.2
11.7
985
11,900
2018E
964
34,306
35,270
351
35,621
56,050
32,465
23,585
1,882
21,606
16,862
4,743
33,415
11,971
1,253
16,961
3,231
42,970
9,552
4,574
28,844
-9,555
-1,896
35,621
(INR Million)
2019E
125,343
14.2
101,244
24,099
17.1
19.2
3,894
39
2,968
23,134
20.3
18.5
7,634
33.0
15,500
20.3
12.4
1,000
14,500
(INR Million)
2019E
964
38,089
39,053
351
39,404
58,487
36,359
22,128
1,882
24,135
19,392
4,743
42,643
13,680
1,431
23,822
3,710
49,258
10,935
5,223
33,100
-6,615
-2,125
39,404
24 August 2017
12

Nestle India
Financials and Valuations
Ratios
Y/E December
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E December
OP/(loss) before Tax
Int./Div. Received
Depn. and Amort.
Interest Paid
Direct Taxes Paid
Incr in WC
CF from Operations
Extraordinary Items
Incr in FA
Free Cash Flow
Pur of Investments
CF from Invest.
Issue of Shares
Incr in Debt
Dividend Paid
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
2014
129.4
164.4
294.3
63.0
48.7
51.0
40.2
6.4
30.4
22.4
1.0
47.9
39.2
77.2
3.6
2.9
0.0
2014
17,152
1,359
2,985
142
5,824
1,065
14,161
0
559
13,602
-393
-166
0
-11,676
7,166
1,812
-17,030
-3,035
7,494
4,458
2015
119.9
155.9
292.2
48.5
40.5
55.1
42.3
7.6
38.8
22.6
0.7
40.9
40.7
96.1
3.4
2.7
0.0
2015
12,473
1,621
3,872
33
2,899
3,451
15,308
0
944
14,364
5,131
-6,075
0
-18
5,633
-3,045
-8,696
537
4,458
4,995
2016
118.0
154.7
312.6
63.0
53.4
55.9
42.7
6.7
34.0
21.1
1.0
39.0
38.8
196.7
3.8
3.0
0.0
2016
14,422
2,139
3,110
35
5,337
4,013
14,104
0
1,000
13,104
4,244
-5,244
0
154
7,311
2,101
-5,056
3,804
4,996
8,800
2017E
115.1
150.5
336.0
70.0
60.8
57.3
43.8
6.2
34.3
19.6
1.1
35.5
35.2
734.6
4.0
3.0
0.0
2017E
14,269
2,326
3,414
38
5,300
-94
10,001
0
1,500
8,501
1,913
-3,413
0
20
7,863
3,603
-4,240
2,349
8,800
11,149
2018E
133.6
172.5
365.8
80.0
59.9
49.4
38.2
5.4
29.0
18.0
1.2
38.1
37.8
-499.6
4.0
3.1
0.0
2018E
16,842
2,428
3,745
39
6,156
3,150
15,192
0
1,950
13,242
2,199
-4,149
0
0
9,025
3,794
-5,231
5,812
11,149
16,961
2019E
160.8
201.1
405.0
95.0
59.1
41.0
32.8
4.7
24.4
16.3
1.4
41.7
41.4
-177.4
4.0
3.2
0.0
(INR Million)
2019E
20,205
2,968
3,894
39
7,405
3,922
17,687
0
2,438
15,249
2,529
-4,967
0
0
10,717
4,859
-5,858
6,862
16,961
23,822
24 August 2017
13

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Nestle India
NOTES
Disclosure of Interest Statement
Analyst ownership of the stock
Nestle India
No
A graph of daily closing prices of securities is available at
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the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following
representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person
or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of
offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or
appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations
as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative
products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time
without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities
mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities
functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already
available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is
being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not
directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would
be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to
certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or
representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The
person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or
employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this
information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring
Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-30801085.
Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset
Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth
management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities
Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products
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