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NESTLE INDIA LTD NOMURA INTERNATIONAL (HONG KONG) LTD. - JAIN, MANISH, ET AL
2 - 14
15 - 38
www.thomsonreuters.com
Nestle India
FOOD & BEVERAGE
NEST.BO NEST IN
EQUITY RESEARCH
April 27, 2011 Rating Remains Target price Increased from 3525 Closing price April 27, 2011 Potential downside
Neutral
INR 3800 INR 3945 -3.7%
Anchor themes In the long term, we prefer food names in the consumer sector vs. HPC names. We see the food subsector growing faster led by lower penetration levels and increased consumption. Nomura vs consensus We are largely in line with consensus on CY12 earnings but are ahead of consensus on CY13. We believe Nestle will deliver >20% earnings growth each year over the next three years.
Research analysts
India Consumer Related Manish Jain - NFASL manish.jain@nomura.com +91 22 4037 4186 Anup Sudhendranath - NFASL anup.sudhendranath@nomura.com +91 22 4037 5406
FY12F New
FY13F New
Revenue (mn) 62,547 Reported net profit (mn) 8,187 Normalised net profit (mn) 8,371 Normalised EPS 86.8 Norm. EPS growth (%) 20.0 Norm. P/E (x) 45.4 EV/EBITDA 29.8 Price/book (x) 44.5 Dividend yield (%) 1.4 ROE (%) 114.0 Net debt/equity (%) net
72,309 10,409 10,409 108.0 26.3 N/A N/A N/A N/A 116.9
76,380 10,256 10,256 106.4 22.5 37.1 23.8 28.5 1.4 93.7
85,937 12,587 12,587 130.5 20.9 N/A N/A N/A N/A 109.0
93,521 112,199 12,563 12,563 130.3 22.5 30.3 19.2 19.5 1.7 76.4 15,306 15,306 158.8 21.8 24.9 15.8 13.9 2.0 65.2
cash net cash net cash net cash net cash net cash
See Appendix A-1 for analyst certification and important disclosures. Analysts employed by non US affiliates are not registered or qualified as research analysts with FINRA in the US.
Key company data: See page 2 for company data, and detailed price/index chart. Rating: See report end for details of Nomuras rating system.
FY09 51,294 -26,982 24,312 FY10 62,547 -33,953 28,594 -12,851 -4,334 11,409 12,686 -1,278 11,409 -11 172 9,596 -2,620 6,976 238 11,636 -3,264 8,371 FY11F 76,380 -41,588 34,792 -15,356 -5,106 14,330 15,908 -1,578 14,330 -30 351 14,651 -4,395 10,256 FY12F 93,521 -51,121 42,400 -18,756 -6,036 17,607 19,703 -2,096 17,607 0 340 17,947 -5,384 12,563 FY13F 112,199 -61,328 50,871 -22,540 -7,114 21,216 23,827 -2,610 21,216 0 650 21,866 -6,560 15,306 Notes
9,438 10,550
45.4 43.8 46.5 1.4 35.4 44.5 29.8 33.1 45.7 20.3 18.2 13.1 28.1 66.5 7.7 3.8 114.0 54.5
37.1 35.7 37.1 1.4 33.1 28.5 23.8 26.4 45.6 20.8 18.8 13.4 30.0 53.3 9.3 4.5 93.7 53.7
30.3 29.2 30.3 1.7 25.8 19.5 19.2 21.5 45.3 21.1 18.8 13.4 30.0 50.7 8.1 3.6 76.4 51.5
24.9 23.9 24.9 2.0 23.0 13.9 15.8 17.7 45.3 21.2 18.9 13.6 30.0 48.5 6.3 2.7 65.2 51.2
Priceandpricerelativechart(oneyear)
(INR) 4200 4000 3800 3600 3400 3200 3000 2800 2600 J un 10 A ug 10 S ep 10 D e c 10 Feb 11 J an 11 J u l 10 N o v 10 M a y 10 O c t 10 M a r 11 A p r 11 Price Rel MSCI India 140 130 120 110 100 90
(%) Absolute (INR) Absolute (USD) Relative to index Market cap (USDmn)
Estimated free float 38.0 (%) 52-week range (INR) 4224/2570 3-mth avg daily turnover (USDmn) Major shareholders (%) Nestle LIC of India 3.16
62.8 2.7
Cashflow(INRmn)
Year-end 31 Dec EBITDA 10,550 Change in working capital 1,417 Other operating cashflow Cashflow from operations Capital expenditure -2,064 Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity ssue i Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Source: Nomura estimates
FY09 FY10 12,686 1,575 -3,523 10,739 -4,832 5,907 526 0 13 6,445 -5,448 0 0 0 -5,448 997 1,556 2,553 -2,553 FY11F 15,908 -345 -4,074 11,489 -7,086 4,403 0 0 0 4,403 -5,462 0 750 0 -4,712 -309 2,553 2,244 -1,494 FY12F 19,703 105 -5,044 14,764 -7,600 7,164 0 0 0 7,164 -6,363 0 -750 0 -7,113 50 2,244 2,295 -2,294 FY13F 23,827 -1,405 -5,910 16,512 -7,075 9,437 0 0 -88 9,348 -7,424 Notes
-3,073 8,894 6,830 -1,684 0 -49 5,098 -5,471 0 -8 0 -5,479 -381 1,937 1,556 -1,556
Balancesheet(INRmn)
As at 31 Dec Cash & equivalents 1,556 Marketable securities Accounts receivable Inventories 4,987 Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable 5,876 Other current liabilities 8,348 Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock 0 Common stock 964 Retained earnings 4,848 Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover 674.8 Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory 63.1 Days payable 74.0 Cash cycle -7.0
Source: Nomura estimates
FY09 0 642
Notes
0 20,356
5,813 20,356
8,554 25,583
13,348 32,609
19,548 40,349
27,430 49,118
0.66 477.7
0.69 na
0.86 na
3.9
Some of the planned investments across its existing plants are listed below: Ponda (Goa) Rs5bn Nanjangud (Karnataka) Rs4bn Samalkha (Haryana) Rs6.5bn Bicholim (Goa) Rs1.5bn 1Q CY11 results A strong start to the year The Q1 results showed a strong start to the year, with sales growth marginally ahead of our expectations, but the key surprise was gross margins. The company benefitted from a strong price / mix, which led to a 100bp y-y improvement in gross margins, in our view. However, this was despite an increase in commodity costs which was offset during the quarter by the benefit from price/mix. At the PAT line, results were 11% ahead of our estimates, which we have now incorporated into our numbers for CY11F. As we had highlighted before (Young and Hungry, February 21, 2011), food companies have better pricing power vs hygiene and personal care (HPC) companies, which gives them an advantage in a rising input cost scenario. This was demonstrated by Nestles 1Q CY11 results, which were helped by much stronger pricing and mix benefits than we had expected. Key highlights of the 1Q CY11 results Net sales rose +22.3% to Rs18.1bn vs. our expectation of Rs17.7bn. This can be attributed to strong volume growth as well as price/mix benefit. Export sales rose 10.2% for the quarter. Gross margin improved by 100bps y-y but was down 120bps q-q. Gross margin improvement can be attributed to positive channel and product mix. However, the company does indicate that pressure from commodity costs has offset the improvement in gross margin, and hence, it has a cautious outlook on input cost pressures for the rest of the year. EBITDA came in at Rs3.8bn.This was also helped by lower employee costs vs. our expectations. EBITDA margin for the quarter was 21.3%, an 80bp improvement y-y. Reported PAT was Rs2.5bn, with EPS coming in at Rs26.5 for the quarter.
Fig. 1: Nestle India - 1Q CY11 results highlights
Quarter Ended (Rs mn) Net Sales EBIDTA Other income PBIDT Depreciation Interest PBT Tax Adjusted PAT Extra ordinary income/ (exp.) Reported PAT No. of shares (mn) EBIDTA margins (%)
Source: Company data, Nomura research
Mar-11 Mar-10 YoY % Chg 22.3 18,100 14,798 3,853 3,040 26.7 128 91 39.6 3,981 3,132 27.1 327 310 5.6 1 6 3,653 2,816 29.7 1,027 845 21.5 2,626 1,971 33.3 (69) 48 2,557 2,019 26.7 96 96 21.3 20.5
16,710 3,298 139 3,437 358 1 3,078 861 2,217 (183) 2,034 96 19.7
Dec-10 QoQ % Chg 8.3 16.9 (8.3) 15.8 (8.6) 18.7 19.3 18.5 25.7
Our expectations for quarterly performance in CY11F We expect sales growth to be strong through the rest of the year as well as in line with the strong 1Q, helped by solid volume growth, strong pricing actions, as well as mix improvement. We see revenue growth at 22-23% for the rest of the year (2Q-4Q) on a
y-y basis, largely helped by the companys strong pricing action taken across its portfolio. We also see benefits from mix improvement seen in 1Q continuing through the rest of the year. However, input cost pressure remains high in the near term, which should hold back significant margin improvement over the next couple of quarters, in our view. We foresee flat margins y-y in 2Q CY11F and expect margins to improve by 50bp in 2H CY11F as input cost pressures begin to ease as the company expects costs to moderate in 2H CY11. In all, this implies that for the full-year CY11F, margins will likely improve by 50bps, which is lower than what was visible in 1Q. With input prices easing off significantly, we see margin risk on the upside from these levels.
Fig. 2: Quarterly expectations for Nestle India CY11
Q1 CY11A Sales Grow th (%) EBITDA EBITDA margins PAT Grow th (%)
Source: Company data, Nomura estimates
Input cost pressures offset by strong pricing dynamics The company expects input costs will continue to be volatile in the short term, and hence, we think it is difficult to have clear visibility on how input prices will impact gross margins in the near term. However, the company does have the advantage of managing costs by way of supply-chain efficiencies and various sourcing benefits it gets from having preferred supply partners. In addition, we and the Street were surprised by the strong price/mix benefit seen by the company in 1Q CY11. The companys pricing actions have not been limited to the milk portfolio only, but have been extended to chocolates and dairy products as well. The company has, in the past, spoken about taking price increases in its prepared dishes portfolio as well, which should further help protect its gross margins, in our view.
Fig. 3: Nestle India raw material price index
11% 2%
2009
2010
154.9
152.5
152.6
105.4
109.2
113.3
119.0
Current
Q1CY10
Q2CY10
Q3CY10
Q1CY10
Q2CY10
Q3CY10
Q4CY10
Current
Q4CY10
Q1CY10
Q2CY10
Q3CY10
Q4CY10
Q1CY10
Q2CY10
Q3CY10
Pricing power gives food companies relative protection vs. HPC peers As we have highlighted in the past (Young and Hungry, February 21, 2011), food companies are relatively better placed vis--vis HPC companies, as far as price increases are concerned. Consumers are more accepting of price increases, with food inflation being in double digits over the past three years (source: Nomura economics team). What has been a positive as far as Nestle is concerned is that volume growth has continued to be strong despite price increases.
Q4CY10
Current
Current
Price increase
7.0%
5.4%
14.9%
18.7%
16.9%
Q2CY10
Q3CY10
Q4CY10
CY10
Margin expectations pared down for CY11F and CY12F We were earlier building in a significant 80bp margin improvement in CY11F and a more moderate 20bp improvement in CY12F. However, with input cost increases in 1Q CY11 being significantly ahead of our estimates, we now see limited scope for margin improvement. We are now building a more moderate increase in margins over the next couple of years. We now expect margins to improve by 50bps in CY11F and 30bps in CY12F. While margins were up 75bps in 1Q CY11, we would wait for more sustainable trends into the next quarter before re-looking at our margin assumptions. Our expectations for the rest of the year are a more steady 50bp increase in 2H CY11, with 2Q being the weakest quarter in terms of margin performance. Raising price target to Rs3,800 owing to roll forward We are raising our price target by nearly 8% to Rs3,800 (from Rs3,525 ) on account of a roll-forward by one quarter. There is a minimal 2% cut to our CY11F estimates and a 1% cut to our CY12F estimates, but our target multiple remains the same at 27x CY12F. This leads to a nearly 8% increase in our price target. Our valuation methodology is unchanged. Reaffirm NEUTRAL and look for a better entry point We continue to believe Nestle India is a great long-term story in the food space in India; however, our concern in the near term is around valuations, which are at 29.4x CY12F EPS of Rs130.3. We believe the stock is expensive at current levels, and would look for a better entry point into what we consider one of the best long-term stories in the Indian consumer space.
ITC IN
Buy
194
1.5x
PF IN TTAN IN
Buy Reduce
275 4124
0.3x 1.5x
APNT IN
Buy
2668
1.3x
Note: Prices as of 27 April, 2010 * Valuations are CY11F and CY12F Source: Bloomberg, Nomura research
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Appendix A-1
Analyst Certification
I, Manish Jain, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Previous Rating
Issuer name Nestle India Previous Rating Reduce Date of change 21-Feb-2011
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our INR3,800 price target is based on 27x our CY12F EPS estimate of Rs130.3. Risks that may impede the achievement of the target price Negative risks arise from further increase in input prices and higher A&P spends. Positive risks come from better price/mix improvement vs. our expectations.
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Important Disclosures
Online availability of research and additional conflict-of-interest disclosures
Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS and BLOOMBERG. Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email grpsupporteu@nomura.com for technical assistance. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. Industry Specialists identified in some Nomura International plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear. Marketing Analysts identified in some Nomura research reports are research analysts employed by Nomura International plc who are primarily responsible for marketing Nomuras Equity Research product in the sector for which they have coverage. Marketing Analysts may also contribute to research reports in which their names appear and publish research on their sector.
The distribution of all ratings published by Nomura US Equity Research is as follows: 38% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 4% of companies with this rating are investment banking clients of the Nomura Group*. 55% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 1% of companies with this rating are investment banking clients of the Nomura Group*. 7% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with this rating are investment banking clients of the Nomura Group*. As at 31 March 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.
The distribution of all ratings published by Nomura Global Equity Research is as follows: 49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 37% of companies with this rating are investment banking clients of the Nomura Group*. 40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. 11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies with this rating are investment banking clients of the Nomura Group*. As at 31 March 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (exAsia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
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STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more.
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A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008)
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
Target Price
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Financial Performance
The company reported revenue of INR62,547.5 million during the fiscal year 2010 (FY2010). The company's revenue grew at a CAGR of 22.08% during 200610 with an annual growth of 21.9% over FY2009. During FY2010, operating margin of the company was 18.3% as compared to operating margin of 17.9% in FY2009. During FY2010, the company recorded net margin of 13.1% as compared to net margin of 12.8% in FY2009.
Corporate Address:
002, India
Telephone
+ 91 124 6389300
No. of Employees
4,983
Fax
+ 91 124 6389411
December
URL
www.nestle.in
62,974.00
Industry
1,370.79
Locations
Australia, Bangladesh, Fiji, India, Sri Lanka, Russian Federation, Kenya, South Africa
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NESCAF CLASSIC NESTEA NESTEA Iced Tea MAGGI 2-MINUTE Noodles MAGGI Sauces MAGGI RICE NOODLE MANIA MAGGI Healthy Soup- Sanjeevni NESTL KITKAT KIT KAT CHUNKY KIT KAT Mini MUNCH NESTL Milk Chocolate NESTL BAR-ONE NESTL Milk Chocolate MUNCH POP CHOC POLO XTRA STRONG
Source: Annual Report, Company Website, Primary and Secondary Research
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2010
Acquisitions/Mergers/Takeovers
2010
Others
Nestle India added a portfolio of nutritional product brands such as Resource, Optifast, and Spert.
2010
Plans/Strategy
The company has plans to open two new plants by 2011-12, with one of the proposed plants located in Himachal Pradesh.
2009
Corporate Awards
The company was ranked amongst The Most Consistent Top 10 Wealth Creators in Motilal Oswals 14 Annual Wealth Creation Study.
2009
Corporate Awards
The company received various awards which included Star Multinational from Business Standard, and Business Leadership Award from NDTV PROFIT.
2008
Nestle launched two new variants in its popular Kit Kat brand namely, Kit Kat Chunky and Kit Kat Mini.
2008
Corporate Awards
The company received a prestigious Export Award for 2008 from the Ministry of Commerce and Industry in recognition of outstanding export performance in the export of Instant Tea during the year 2006-07.
2007
Corporate Changes/Expansions The plant in Uttaranchal started its initial phase of production.
2005
Corporate Changes/Expansions The company started its seventh factory in Uttaranchal, India.
2003
2002
Contracts/Agreements
McDonald's India entered into a strategic agreement with Nestle India to jointly offer beverages such as ice-tea and cold-coffee as well as desserts at their restaurants.
2001
New Products/Services
Nestle, the parent company started the domestic bottled water business, and marketed drinking water under the brand name 'Pure Life'.
2001
New Products/Services
Nestle India introduced a second premium mineral water brand, San Pellegrino. It also introduced its ultra heat-treated liquid milk, Nestle Pure Milk, in Bangalore, Chennai, Hyderabad and Kochi, India.
1995
Corporate Changes/Expansions
The company started Nanjangud factory to manufacture chocolate and energy food drink products.
1995
1994
New Products/Services
The company introduced a variety of new products which included Cerelac soya, Milk Maid, dessert mixes, Contodina snack dressing and the chocolate items, milky base marbles and bar one peanut.
1993
Corporate Changes/Expansions
The Samalkha factory started operating commissioned and manufactured cereal based products, culinary products, milk products and water.
1990
New Products/Services
The company started chocolate business by introducing Nestle chocolates in the markets.
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1989
Corporate Changes/Expansions
The company was acquired by Nestle and its name was changed from Food Specialities to Nestle India.
1987
Corporate Changes/Expansions
1962
Corporate Changes/Expansions
The company started manufacturing operations through its first factory at Moga, Punjab.
1959
Incorporation/Establishment
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position of the company and its inability in meeting short term obligations than other companies in the industry. Limited liquidity position puts the company at a disadvantage while funding any potential opportunity arising in the market.
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Executive Board
2009
B. Murli
Senior Management
2010
Director
1992
68
Pradip Baijal
Director
2007
Ravinder Narain
Director
1978
73
Richard Sykes
Alternate Director
Shobinder Duggal
Executive Board
2004
Christian Schmid
Technical Director
Executive Board
2010
Swati A. Piramal
Director
2010
52
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Shobinder Duggal Job Title : Director - Finance and Control Board Level : Executive Board Mr. Duggal has been the Director for Finance and Control of the company since 2004. He has been associated with the company since 1986. Prior to this, he was the Vice President for Corporate Control of the company.
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Nestle India Limited - Locations and Subsidiaries Head Office Nestle India Limited
Nestle House Gurgaon Zip: 122 002 India Tel: + 91 124 6389300 Fax: + 91 124 6389411
1st Floor, ICC Chambers, Near Saki Vihar Telephone Exchange Mumbai Zip: 400 072 India
Tower C, 12 Floor, DLF IT Park, 08, Major Arterial Road, Block Spencer Plaza, 6th Floor AF Chennai Kolkata Zip: 600 002 Zip: 700 156 India India
Factory Patti Kalyana, Kiwana Road Samalkha, District Panipat Zip: 132 101 India
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Factory Village Maulinguem (North) Bicholim Taluka Zip: 403 504 India
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Unit/Currency
2010
2009
2008
2007
2006
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Leverage Ratios Debt to Equity Ratio Net Debt to Equity Debt to Capital Ratio Efficiency Ratios Asset Turnover Fixed Asset Turnover Inventory Turnover Current Asset Turnover Capital Employed Turnover Revenue per Employee Net Income per Employee Capex to Sales Absolute Absolute Absolute Absolute Absolute INR INR % 2.42 4.62 6.84 6.02 7.36 12,552,162 1,642,916 7.11 4.96 5.85 4.81 5.03 2.48 5.31 6.3 6.03 8.89 2.51 5.14 6.29 5.46 9.21 2.44 5.43 5.47 5.53 8.44 2.29 5.21 6.43 5.3 7.29 Absolute Absolute Absolute 0.01 0.03 0.01 0.05 0.03 0.01 0.1 0.01 0.04 0.24 0.03
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Unit/Currency
Dec-2010
Sep-2010
Jun-2010
Mar-2010
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Return on Equity
Return on Assets
Current Ratio
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Appendix Methodology
Progressive Digital Media company reports are based on a core set of research techniques which ensure the best possible level of quality and accuracy of data. The key sources used include: Company Websites Company Annual Reports SEC Filings Press Releases Proprietary Databases
Notes Financial information of the company is taken from the most recently published annual reports or SEC filings The financial and operational data reported for the company is as per the industry defined standards Revenue converted to USD at average annual conversion rate as of fiscal year end
Ratio Definitions
Capital Market Ratios measure investor response to owning a company's stock and also the cost of issuing stock.
Price/Earnings (P/E) ratio is a measure of the price paid for a share relative to the annual income earned per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of income, so the stock is more expensive compared to one with lower P/E ratio. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. Price per share is as of previous business close, and EPS is from latest annual report. Formula: Price per Share / Earnings per Share Enterprise Value/EBITDA (EV/EBITDA) is a valuation multiple that is often used in parallel with, or as an alternative to, the P/E ratio. The main advantage of EV/EBITDA over the PE ratio is that it is unaffected by a company's capital structure. It compares the value of a business, free of debt, to earnings before interest. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / (Net Income + Interest + Tax + Depreciation + Amortization) Enterprise Value/Sales (EV/Sales) is a ratio that provides an idea of how much it costs to buy the company's sales. EV/Sales is seen as more accurate than Price/Sales because market capitalization does not take into account the amount of debt a company has, which needs to be paid back at some point. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Sales Enterprise Value/Operating Profit measures the company's enterprise value to the operating profit. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Operating Income
Enterprise Value/Sales
Enterprise Value/Total Assets measures the company's enterprise value to the total assets. Price per share is as of previous business close, and shares outstanding last
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reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Total Assets Dividend Yield shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Formula: Annual Dividend per Share / Price per Share Equity Ratios These ratios are based on per share value.
Dividend Yield
Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Formula: Net Income / Weighted Average Shares
Dividend is the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Dividend Cover
Dividend cover is the ratio of company's earnings (net income) over the dividend paid to shareholders. Formula: Earnings per share / Dividend per share Book Value per Share measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: (Shareholders Equity - Preferred Equity) / Outstanding Shares Cash Value per Share is a measure of a company's cash (cash & equivalents on the balance sheet) that is determined by dividing cash & equivalents by the total shares outstanding. Formula: Cash & equivalents / Outstanding Shares Profitability Ratios are used to assess a company's ability to generate earnings, based on revenues generated or resources used. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.
Profitability Ratios
Gross Margin
Gross margin is the amount of contribution to the business enterprise, after paying for direct-fixed and direct variable unit costs. Formula: {(Revenue-Cost of revenue) / Revenue}*100 Operating Margin is a ratio used to measure a company's pricing strategy and operating efficiency. Formula: (Operating Income / Revenues) *100 Net Profit Margin is the ratio of net profits to revenues for a company or business segment - that shows how much of each dollar earned by the company is translated into profits. Formula: (Net Profit / Revenues) *100 Profit Markup measures the company's gross profitability, as compared to the cost of revenue. Formula: Gross Income / Cost of Revenue
Operating Margin
Profit Markup
Profit Before Interest & Tax Margin shows the profitability of the company before interest expense & taxation. Formula: {(Net Profit + Interest + Tax) / Revenue} *100
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Profit Before Tax Margin measures the pre-tax income over revenues. Formula: {Income Before Tax / Revenues} *100 Return on Equity measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. Formula: (Net Income / Shareholders Equity)*100 Return on Capital Employed is a ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings. Formula: EBIT / (Total Assets Current Liabilities)*100 Return on Assets is an indicator of how profitable a company is relative to its total assets, the ratio measures how efficient management is at using its assets to generate earnings. Formula: (Net Income / Total Assets)*100 Return on Fixed Assets measures the company's profitability to its fixed assets (property, plant & equipment). Formula: (Net Income / Fixed Assets) *100
Return on Equity
Return on Assets
Return on Working Capital measures the company's profitability to its working capital. Formula: (Net Income / Working Capital) *100
Cost Ratios
Cost ratios help to understand the costs the company is incurring as a percentage of sales.
Operating costs as percentage of total revenues measures the operating costs that a company incurs compared to the revenues. Formula: (Operating Expenses / Revenues) *100
Administration costs as percentage of total revenue measures the selling, general and Administration costs (% of administrative expenses that a company incurs compared to the revenues. Sales) Formula: (Administrative Expenses / Revenues) *100 Interest costs as percentage of total revenues measures the interest expense that a company incurs compared to the revenues. Formula: (Interest Expenses / Revenues) *100 Leverage ratios are used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.
Leverage Ratios
Debt to Equity Ratio is a measure of a company's financial leverage. The debt/equity ratio also depends on the industry in which the company operates. For example, capitalintensive industries tend to have a higher debt equity ratio. Formula: Total Liabilities / Shareholders Equity Debt to capital ratio gives an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-tocapital ratio, the more debt the company has compared to its equity. This indicates to investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk. Formula: {Total Debt / (Total assets - Current Liabilities)}
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Interest Coverage Ratio is used to determine how easily a company can pay interest on outstanding debt, calculated as earnings before interest & tax by interest expense. Formula: EBIT / Interest Expense Liquidity ratios are used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.
Liquidity Ratios
Current Ratio
Current Ratio measures a company's ability to pay its short-term obligations. The ratio gives an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. Formula: Current Assets / Current Liabilities Quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Formula: (Current Assets - Inventories) / Current Liabilities Cash ratio is the most stringent and conservative of the three short-term liquidity ratio. It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities. Formula: {(Cash & Bank Balance + Marketable Securities) / Current Liabilities)}
Quick Ratio
Cash Ratio
Efficiency Ratios
Efficiency ratios measure a company's effectiveness in various areas of its operations, essentially looking at maximizing its use of resources.
Fixed Asset Turnover ratio indicates how well the business is using its fixed assets to generate sales. A higher ratio indicates the business has less money tied up in fixed assets for each currency unit of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets. Formula: Net Sales / Fixed Assets Asset turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue to the company. A higher asset turnover ratio shows that the company has been more effective in using its assets to generate revenues. Formula: Net Sales / Total Assets Current Asset Turnover indicates how efficiently the business uses its current assets to generate sales. Formula: Net Sales / Current Assets Inventory Turnover ratio shows how many times a company's inventory is sold and replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. Formula: Cost of Goods Sold / Inventory Working Capital Turnover is a measurement to compare the depletion of working capital to the generation of sales. This provides some useful information as to how effectively a company is using its working capital to generate sales. Formula: Net Sales / Working Capital
Asset Turnover
Inventory Turnover
Capital employed turnover ratio measures the efficiency of a company's use of its equity in generating sales revenue to the company.
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Formula: Net Sales / Shareholders Equity Capex to Sales ratio measures the company's expenditure (investments) on fixed and related assets' effectiveness when compared to the sales generated. Formula: (Capital Expenditure / Sales) *100 Net income per Employee looks at a company's net income in relation to the number of employees they have. Ideally, a company wants a higher profit per employee possible, as it denotes higher productivity. Formula: Net Income / No. of Employees Revenue per Employee measures the average revenue generated per employee of a company. This ratio is most useful when compared against other companies in the same industry. Generally, a company seeks the highest revenue per employee. Formula: Revenue / No. of Employees Efficiency Ratio is used to calculate a bank's efficiency. An increase means the company is losing a larger percentage of its income to expenses. If the efficiency ratio is getting lower, it is good for the bank and its shareholders. Formula: Non-interest expense / Total Interest Income
Business Review
Capex to sales
Efficiency Ratio
Disclaimer
All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Progressive Digital Media. The data and analysis within this report is driven by Progressive Digital Media from its own primary and secondary research of public and proprietary sources and does not necessarily represent the views of the company profiled. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Progressive Digital Media delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Progressive Digital Media can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.
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