13 may 2020 results review 1qcy20 nestle india

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13 May 2020 Results Review 1QCY20 Nestle India HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters Outperformance continues Nestle’s performance in 1QCY20 was ahead of estimates as the co continued its strong growth despite the disruption caused by Covid-19. Most players faced supply chain and channel liquidity issues during the last 10-15 days of March. Hence, domestic revenue growth of 11% yoy reflects that Nestle’s performance pre-Covid was strong. Pantry loading supported packaged food business despite lockdown impact (Marico’s Saffola posted 25% growth). Brands such as Maggi, Kitkat and Munch continued to drive growth for Nestle even as out of home consumption slumped. The rise in Ecomm’s contribution in revenues is a positive sign as the surge of Ecomm will benefit bigger brands and aid them in gaining market share. Despite beat in 1Q, we do not see any change in our annual estimates. We maintain our EPS estimates for CY20/CY21/CY22. The recent sharp re-rating amidst flight to safety (+34% since 23 rd March) limits any upsides in the medium term and makes the risk- reward unattractive. We value Nestle at 47x on Mar-22E EPS, and derive a TP of Rs 14,042. Maintain REDUCE. Revenue outperformance continues: Net revenues grew by 11% yoy (+9% in 1QCY19 and +9% in 4QCY19) vs exp of 1% decline. We had modeled 10% growth pre-Covid and zero primary sales in the last 10 days. However, pantry loading supported the growth and domestic sales grew by strong 11% yoy (+10% in 1QCY19 and +10% in 4QCY19). Domestic revenue was driven by both volume as well an improved mix. Exports saw a strong growth of 13% yoy supported by favourable base (-9% in 1QCY19 and -10% in 4QCY19). Margin pressure sustained: GM contracted by 223bps yoy to 56.3% (-57bps in 1QCY19 and -218bps in 4QCY19) vs. exp of -152bps. Margin impact was sharp despite product mix was favorable. Employee/ Other expenses grew by 19/3% yoy. EBITDA margin saw contraction of 146bps yoy to 24.4% (- 29bps in 1QCY19 and +94bps in 4QCY19) vs expectation of -122bps. EBITDA grew by 5% yoy. We expect raw material pressure will ease out in the coming quarters. Press Release takeaways: (1) Growth in revenue was led by volume as well as mix, (2) Maggi, Kitkat and Munch delivered strong performance, (3) E- comm registered strong growth and contribution from the channel surged, (4) Co witnessed subdued out of home consumption, (5) Pressure on gross margins due to inflation in milk products continued in 1QCY20. Maintain REDUCE: Nestle’s valuation doesn’t provide an upside in the stock. Although Nestle’s performance in CY20 will be healthier than peers but most positives are priced-in. We maintain REDUCE rating. Financial Summary YE Mar (Rs mn) Q1 CY20 Q1 CY19 YoY (%) Q4 CY19 QoQ (%) CY19P CY20E CY21E CY22E Net Sales 33,253 30,030 10.7 31,493 5.6 123,689 136,033 150,324 166,574 EBITDA 8,103 7,755 4.5 7,027 15.3 29,301 32,395 36,722 41,583 APAT 5,254 4,762 10.3 4,866 8.0 19,858 22,913 26,820 31,625 Diluted EPS (Rs) 54.5 49.4 10.3 50.5 8.0 206.0 237.6 278.2 328.0 P/E (x) 84.8 73.5 62.8 53.2 EV / EBITDA (x) 56.4 50.6 44.3 38.7 RoCE (%) 75.0 70.7 69.1 77.6 Source: Company, HSIE Research REDUCE CMP (as on 12 May 2020) Rs 17,462 Target Price Rs 14,042 NIFTY 9,197 KEY CHANGES OLD NEW Rating REDUCE REDUCE Price Target Rs 14,042 Rs 14,042 EPS % CY20E CY21E - - KEY STOCK DATA Bloomberg code NEST IN No. of Shares (mn) 96 MCap (Rs bn) / ($ mn) 1,684/22,338 6m avg traded value (Rs mn) 1,842 52 Week high / low Rs 18,370/9,966 STOCK PERFORMANCE (%) 3M 6M 12M Absolute (%) 7.1 23.8 73.3 Relative (%) 31.7 46.0 89.6 SHAREHOLDING PATTERN (%) Dec-19 Mar-20 Promoters 62.76 62.76 FIs & Local MFs 8.92 9.12 FPIs 12.07 11.81 Public & Others 16.25 16.31 Pledged Shares 0.0 0.0 Source : BSE Varun Lohchab [email protected] +91-22-6171-7334 Naveen Trivedi [email protected] +91-22-6171-7324 Aditya Sane [email protected] +91-22-6171-7336

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13 May 2020 Results Review 1QCY20

Nestle India

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Outperformance continues

Nestle’s performance in 1QCY20 was ahead of estimates as the co continued

its strong growth despite the disruption caused by Covid-19. Most players

faced supply chain and channel liquidity issues during the last 10-15 days of

March. Hence, domestic revenue growth of 11% yoy reflects that Nestle’s

performance pre-Covid was strong. Pantry loading supported packaged food

business despite lockdown impact (Marico’s Saffola posted 25% growth).

Brands such as Maggi, Kitkat and Munch continued to drive growth for

Nestle even as out of home consumption slumped. The rise in Ecomm’s

contribution in revenues is a positive sign as the surge of Ecomm will benefit

bigger brands and aid them in gaining market share. Despite beat in 1Q, we

do not see any change in our annual estimates. We maintain our EPS estimates

for CY20/CY21/CY22. The recent sharp re-rating amidst flight to safety (+34%

since 23rd March) limits any upsides in the medium term and makes the risk-

reward unattractive. We value Nestle at 47x on Mar-22E EPS, and derive a TP

of Rs 14,042. Maintain REDUCE.

Revenue outperformance continues: Net revenues grew by 11% yoy (+9%

in 1QCY19 and +9% in 4QCY19) vs exp of 1% decline. We had modeled 10%

growth pre-Covid and zero primary sales in the last 10 days. However,

pantry loading supported the growth and domestic sales grew by strong

11% yoy (+10% in 1QCY19 and +10% in 4QCY19). Domestic revenue was

driven by both volume as well an improved mix. Exports saw a strong

growth of 13% yoy supported by favourable base (-9% in 1QCY19 and -10%

in 4QCY19).

Margin pressure sustained: GM contracted by 223bps yoy to 56.3% (-57bps

in 1QCY19 and -218bps in 4QCY19) vs. exp of -152bps. Margin impact was

sharp despite product mix was favorable. Employee/ Other expenses grew

by 19/3% yoy. EBITDA margin saw contraction of 146bps yoy to 24.4% (-

29bps in 1QCY19 and +94bps in 4QCY19) vs expectation of -122bps. EBITDA

grew by 5% yoy. We expect raw material pressure will ease out in the

coming quarters.

Press Release takeaways: (1) Growth in revenue was led by volume as well

as mix, (2) Maggi, Kitkat and Munch delivered strong performance, (3) E-

comm registered strong growth and contribution from the channel surged,

(4) Co witnessed subdued out of home consumption, (5) Pressure on gross

margins due to inflation in milk products continued in 1QCY20.

Maintain REDUCE: Nestle’s valuation doesn’t provide an upside in the

stock. Although Nestle’s performance in CY20 will be healthier than peers

but most positives are priced-in. We maintain REDUCE rating.

Financial Summary

YE Mar (Rs mn) Q1

CY20

Q1

CY19

YoY

(%)

Q4

CY19

QoQ

(%) CY19P CY20E CY21E CY22E

Net Sales 33,253 30,030 10.7 31,493 5.6 123,689 136,033 150,324 166,574

EBITDA 8,103 7,755 4.5 7,027 15.3 29,301 32,395 36,722 41,583

APAT 5,254 4,762 10.3 4,866 8.0 19,858 22,913 26,820 31,625

Diluted EPS (Rs) 54.5 49.4 10.3 50.5 8.0 206.0 237.6 278.2 328.0

P/E (x)

84.8 73.5 62.8 53.2

EV / EBITDA (x)

56.4 50.6 44.3 38.7

RoCE (%)

75.0 70.7 69.1 77.6

Source: Company, HSIE Research

REDUCE

CMP (as on 12 May 2020) Rs 17,462

Target Price Rs 14,042

NIFTY 9,197

KEY

CHANGES OLD NEW

Rating REDUCE REDUCE

Price Target Rs 14,042 Rs 14,042

EPS % CY20E CY21E

- -

KEY STOCK DATA

Bloomberg code NEST IN

No. of Shares (mn) 96

MCap (Rs bn) / ($ mn) 1,684/22,338

6m avg traded value (Rs mn) 1,842

52 Week high / low Rs 18,370/9,966

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) 7.1 23.8 73.3

Relative (%) 31.7 46.0 89.6

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 62.76 62.76

FIs & Local MFs 8.92 9.12

FPIs 12.07 11.81

Public & Others 16.25 16.31

Pledged Shares 0.0 0.0

Source : BSE

Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Aditya Sane

[email protected]

+91-22-6171-7336

Page | 2

Nestle India: Results Review 1QCY20

Quarterly standalone Financial Snapshot

Particulars (Rs mn) Q1CY20 Q1CY19 YoY

(%) Q4CY19

QoQ

(%) CY19 CY18

YoY

(%)

Domestic sales 31,242 28,216 10.7 29,608 5.5 1,16,568 1,05,075 10.9

Export Sales 1,816 1,608 12.9 1,700 6.8 6,385 7,087 (9.9)

Total Revenue 33,058 29,824 10.8 31,307 5.6 1,22,953 1,12,162 9.6

Other Operating Income 195 206 (5.2) 186 5.1 736 760 (3.2)

Net Revenue 33,253 30,030 10.7 31,493 5.6 1,23,689 1,12,923 9.5

Material Expenses 14,533 12,453 16.7 13,614 6.7 52,239 45,902 13.8

Employee Expenses 3,584 3,018 18.7 3,220 11.3 12,604 11,242 12.1

Other Operating Expenses 7,033 6,803 3.4 7,632 (7.8) 29,259 28,181 3.8

EBITDA 8,103 7,755 4.5 7,027 15.3 29,587 27,598 7.2

Depreciation 914 914 (0.0) 936 (2.4) 3,438 3,398 1.2

EBIT 7,190 6,842 5.1 6,091 18.0 26,149 24,200 8.1

Other Income 429 732 (41.5) 447 (4.1) 2,469 2,589 (4.7)

Interest Cost 410 339 20.8 311 31.6 1,249 1,120 11.5

PBT 7,039 7,006 0.5 6,141 14.6 26,738 24,220 10.4

Exceptional item - - na - na - 69 (100.0)

PBT after exceptional 7,039 7,006 0.5 6,141 14.6 26,738 24,290 10.1

Tax 1,784 2,379 (25.0) 1,415 26.1 7,051 8,220 (14.2)

PAT 5,254 4,627 13.5 4,726 11.2 19,687 16,070 22.5

Exceptional (net of taxes) - - na - na - - na

APAT 5,254 4,627 13.5 4,726 11.2 19,687 16,070 22.5

EPS (adjusted) 54.5 48.0 13.5 49.0 11.2 204.2 166.7 22.5

Source: Company, HSIE Research

Quarterly Performance Analysis

(% of Revenues) Q1CY20 Q1CY19 YoY

(bps) Q4CY19

QoQ

(bps) CY19 CY18 YoY (bps)

Domestic sales 94.0 94.0 (1) 94.0 (6) 94.2 93.1 119

Export Sales 5.5 5.4 10 5.4 6 5.2 6.3 (111)

Material Expenses 43.7 41.5 223 43.2 48 42.2 40.6 159

Employee Expenses 10.8 10.1 73 10.2 55 10.2 10.0 23

Other Operating Expenses 21.1 22.7 (150) 24.2 (308) 23.7 25.0 (130)

EBITDA Margin (%) 24.4 25.8 (146) 22.3 206 23.9 24.4 (52)

Tax (%) 5.4 7.9 (256) 4.5 87 5.7 7.3 (158)

APAT Margin (%) 15.8 15.4 39 15.0 79 15.9 14.2 169

Source: Company, HSIE Research

Domestic revenue rose 11%

with exports increasing

13%

Employee/ Other expenses

increased by 19/3%

GM contracted by 223bps

yoy to 56.3% (-57bps in

1QCY19 and -218bps in

4QCY19) vs. exp of -152bps

EBITDA margin saw

contraction of 146bps yoy

to 24.4% (-29bps in

1QCY19 and +94bps in

4QCY19) vs expectation of

-122bps.

Page | 3

11

Nestle India: Results Review 1QCY20

Revenue Growth Volume Growth

Source: Company, HSIE Research Source: Company, HSIE Research

Gross Margin EBITDA Margin

Source: Company, HSIE Research

Source: Company, HSIE Research

Revenue Mix (CY19) Revenue CAGR

Source: Company, HSIE Research

Source: Company, HSIE Research

-18.0%

-9.0%

0.0%

9.0%

18.0%

Q1

CY

17

Q2

CY

17

Q3

CY

17

Q4

CY

17

Q1

CY

18

Q2

CY

18

Q3

CY

18

Q4

CY

18

Q1

CY

19

Q2

CY

19

Q3

CY

19

Q4

CY

19

Q1

CY

20

Domestic Sales Export Sales

0%

4%

8%

12%

16%

Q1

CY

17

Q2

CY

17

Q3

CY

17

Q4

CY

17

Q1

CY

18

Q2

CY

18

Q3

CY

18

Q4

CY

18

Q1

CY

19

Q2

CY

19

Q3

CY

19

Q4

CY

19

Q1

CY

20

52%

55%

57%

60%

62%

-

4,000

8,000

12,000

16,000

20,000

Q1

CY

16

Q2

CY

16

Q3

CY

16

Q4

CY

16

Q1

CY

17

Q2

CY

17

Q3

CY

17

Q4

CY

17

Q1

CY

18

Q2

CY

18

Q3

CY

18

Q4

CY

18

Q1

CY

19

Q2

CY

19

Q3

CY

19

Q4

CY

19

Q1

CY

20

Gross Profit Gross Margin

17%

20%

22%

25%

27%

-

2,000

4,000

6,000

8,000 Q

1C

Y16

Q2

CY

16

Q3

CY

16

Q4

CY

16

Q1

CY

17

Q2

CY

17

Q3

CY

17

Q4

CY

17

Q1

CY

18

Q2

CY

18

Q3

CY

18

Q4

CY

18

Q1

CY

19

Q2

CY

19

Q3

CY

19

Q4

CY

19

Q1

CY

20

EBITDA EBITDA Margin

Milk &

Nutrition

Prepared

Dishes

Beverages

Chocolates

5%

14%

6% 5% 5%

10%

16%

8% 8%

10%

0.0%

4.5%

9.0%

13.5%

18.0%

Mil

k &

Nu

trit

ion

Pre

pa

red

Dis

hes

Bev

era

ges

Ch

oco

late

s

To

tal

5 Yr CAGR 10 Yr CAGR

Page | 4

11

Nestle India: Results Review 1QCY20

Assumptions

Particulars CY13 CY14 CY15 CY16 CY17 CY18 CY19P CY20E CY21E CY22E

Revenue Growth (%)

Milk and Nutrition 5.5 12.4 2.1 (0.7) 6.2 7.6 8.6 8.1 9.5 9.8

Prepared dishes & Cooking Aids 11.0 9.7 (55.6) 76.4 19.9 14.7 12.9 18.7 12.2 12.5

Beverages 17.9 1.2 (0.3) (3.7) 15.0 9.8 7.0 5.0 10.5 10.8

Chocolates 10.0 (2.6) (11.4) 5.4 9.7 14.7 8.9 2.0 10.0 10.0

Total Revenue 9.3 8.0 (16.8) 11.6 11.0 10.7 9.6 10.0 10.5 10.8

Gross Margin 54.6 54.0 57.5 57.5 56.8 59.4 57.8 56.5 57.4 58.0

ASP (% of revenue) 4.4 4.5 6.4 5.5 5.1 6.5 5.6 5.0 5.2 5.2

Distribution (% of revenue) 4.8 4.9 4.8 4.8 4.8 4.7 4.6 4.4 4.5 4.6

EBITDA Margin 22.0 21.2 20.3 22.6 22.5 24.4 23.7 23.8 24.4 25.0

Tax Rate (%) 33.7 33.2 30.8 35.2 33.4 33.8 25.2 25.2 25.2 25.2

APAT Margin 11.6 11.6 11.9 12.3 13.1 14.9 16.1 16.8 17.8 19.0

Source: Company, HSIE Research

Page | 5

11

Nestle India: Results Review 1QCY20

Change in Estimates

CY20 CY21E CY22E

OLD NEW Chg (%) OLD NEW Chg (%) OLD NEW Chg (%)

Net Sales 134,524 136,033 1 148,647 150,324 1 164,711 166,574 1

EBITDA 32,408 32,395 (0) 36,830 36,722 (0) 41,640 41,583 (0)

APAT 22,922 22,913 (0) 26,900 26,820 (0) 31,665 31,625 (0)

EPS 238 238 (0) 279 278 (0) 328 328 (0)

Peer Set Comparison

Company Mcap

(Rs bn)

CMP

(Rs/sh) Reco TP

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

FY20E/

CY19P

FY21E/

CY20E

FY22E/

CY21E

HUL 4,357 2,013 REDUCE 1,969 31.7 37.1 41.9 63.5 54.3 48.1 43.5 37.3 33.2 230.7 46.5 28.8

ITC 2,029 166 BUY 221 12.5 11.9 13.0 13.2 13.9 12.7 8.8 10.1 9.0 44.5 43.4 48.0

Nestle 1,684 17,462 REDUCE 14,042 206.0 237.6 278.2 84.8 73.5 62.8 56.4 50.6 44.3 75.0 70.7 69.1

Dabur 779 442 REDUCE 447 9.0 10.0 11.2 49.1 44.1 39.5 39.3 36.4 32.3 51.4 52.7 55.9

Britannia 749 3,115 REDUCE 2,711 56.4 61.9 71.4 55.2 50.3 43.7 40.2 36.2 31.8 41.1 43.4 47.2

GCPL 530 519 REDUCE 529 14.5 15.9 17.6 35.8 32.7 29.5 25.5 24.6 22.7 18.5 20.0 22.1

Marico 386 299 REDUCE 283 8.0 8.4 9.4 37.2 35.4 31.6 26.2 25.0 23.0 41.8 43.2 46.5

United Spirits 367 505 ADD 586 11.9 13.7 16.1 44.1 36.9 31.4 25.3 23.0 20.0 17.9 19.1 20.8

Colgate 362 1,331 ADD 1,372 29.8 32.0 36.1 44.6 41.6 36.8 28.3 26.4 23.6 69.6 72.7 80.5

Jubilant 211 1,597 ADD 1,502 30.1 21.9 37.5 53.0 73.1 42.5 32.2 40.3 25.2 31.4 12.0 22.6

Emami 82 181 REDUCE 221 11.7 11.6 13.0 15.5 15.5 13.9 11.0 11.0 9.8 23.2 24.1 29.9

Radico

Khaitan 40 299 BUY 371 16.1 19.6 23.2 18.5 15.3 12.9 11.2 9.6 8.0 14.9 14.3 15.8

Source: Company, HSIE Research,

Page | 6

11

Nestle India: Results Review 1QCY20

Financials Consolidated Income Statement

(Rs mm) CY15 CY16 CY17 CY18 CY19P CY20E CY21E CY22E

Net Revenues 81,609 91,413 100,096 112,922 123,689 136,033 150,324 166,574

Growth (%) (17.0) 12.0 11.0 12.8 9.5 10.0 10.5 10.8

Material Expenses 34,689 38,828 43,269 45,902 52,239 59,150 64,050 70,036

Employee Expense 9,128 9,016 10,175 11,242 12,604 14,035 15,158 16,370

ASP Expense 5,252 4,996 5,060 7,294 6,927 6,802 7,817 8,662

Distribution Expenses 3,889 4,401 4,773 5,256 5,690 5,985 6,765 7,671

Other expenses 12,123 13,558 14,338 15,630 16,929 17,666 19,812 22,252

EBITDA 16,529 20,615 22,483 27,599 29,301 32,395 36,722 41,583

EBITDA Growth (%) (20.8) 24.7 9.1 22.8 6.2 10.6 13.4 13.2

EBITDA Margin (%) 20.3 22.6 22.5 24.4 23.7 23.8 24.4 25.0

Depreciation 3,473 3,537 3,423 3,357 3,164 3,491 3,640 3,754

EBIT 13,056 17,078 19,060 24,242 26,137 28,904 33,083 37,829

Other Income (Including EO Items) 1,245 1,509 1,769 2,589 2,469 2,506 3,413 4,524

Interest 33 909 919 1,120 1,249 1,063 957 425

PBT 8,137 15,454 18,393 24,291 26,726 30,347 35,540 41,928

Tax 2,504 5,440 6,141 8,221 7,053 7,638 8,945 10,553

Reported PAT 5,633 10,014 12,252 16,070 19,672 22,709 26,594 31,375

Adjustment 4,102 1,238 832 759 186 205 226 251

Adjusted PAT 9,735 11,252 13,083 16,829 19,858 22,913 26,820 31,625

APAT Growth (%) (14.8) 15.6 16.3 28.6 18.0 15.4 17.1 17.9

Adjusted EPS (Rs) 101 117 136 175 206 237.6 278.2 328.0

EPS Growth (%) (14.8) 15.6 16.3 28.6 18.0 15.4 17.1 17.9

Consolidated Balance Sheet

(Rs mm) CY15 CY16 CY17 CY18 CY19P CY20E CY21E CY22E

SOURCES OF FUNDS

Share Capital - Equity 964 964 964 964 964 964 964 964

Reserves 27,214 31,859 33,242 35,773 18,358 25,486 33,306 42,543

Total Shareholders Funds 28,178 32,823 34,206 36,737 19,323 26,450 34,270 43,507

Minority Interest - - - - - - - -

Long Term Debt 9 - - - - - - -

Short Term Debt 168 332 351 351 531 531 531 531

Total Debt 177 332 351 351 531 531 531 531

Net Deferred Taxes 1,729 1,553 1,220 588 180 180 180 180

Long Term Provisions & Others 15,972 19,722 22,916 24,654 29,073 31,974 35,333 39,152

TOTAL SOURCES OF FUNDS 46,057 54,430 58,693 62,331 49,107 59,135 70,314 83,370

APPLICATION OF FUNDS

Net Block 28,979 27,301 26,162 24,006 22,267 21,998 20,161 18,242

CWIP 2,308 1,882 942 1,052 1,433 - - -

Other Non-current Assets 13,249 17,557 19,789 26,585 17,511 20,511 23,511 26,511

Total Non-current Assets 44,536 46,740 46,892 51,643 41,211 42,508 43,671 44,752

Goodwill - - - - - - - -

Inventories 8,208 9,401 9,025 9,656 12,831 12,494 13,654 15,015

Debtors 784 979 890 1,246 1,243 1,371 1,515 1,679

Other Current Assets 2,282 2,185 2,245 2,236 2,217 2,721 3,006 3,331

Cash & Equivalents 4,996 8,800 14,574 16,101 13,081 23,513 33,923 46,399

Total Current Assets 16,269 21,365 26,734 29,238 29,371 40,098 52,099 66,424

Creditors 7,398 7,992 9,846 12,404 14,947 16,798 18,158 19,823

Other Current Liabilities & Provns 7,350 5,683 5,087 6,146 6,528 6,673 7,297 7,984

Total Current Liabilities 14,748 13,674 14,933 18,550 21,475 23,471 25,456 27,807

Net Current Assets 1,521 7,691 11,801 10,688 7,896 16,627 26,643 38,617

TOTAL APPLICATION OF FUNDS 46,057 54,430 58,693 62,331 49,107 59,135 70,314 83,370

Source: Company, HSIE Research

Page | 7

11

Nestle India: Results Review 1QCY20

Consolidated Cash Flow (Rs mn) CY15 CY16 CY17 CY18 CY19P CY20E CY21E CY22E

Reported PBT 8,137 15,454 18,393 24,290 26,750 30,347 35,540 41,928

Non-operating & EO Items - 131 416 (2,477) (2,497) - - -

Interest Expenses 33 (1,474) (1,763) 41 17 1,063 957 425

Depreciation 3,473 3,537 3,423 3,357 3,164 3,217 3,337 3,419

Working Capital Change 715 2,040 3,750 4,128 1,632 1,701 395 501

Tax Paid (2,899) (5,029) (6,041) (8,813) (6,729) (7,638) (8,945) (10,553)

OPERATING CASH FLOW ( a ) 9,459 14,659 18,178 20,525 22,337 28,690 31,283 35,720

Capex (944) (2,070) (1,986) (1,660) (1,545) (1,500) (1,500) (1,500)

Free Cash Flow (FCF) 8,515 12,589 16,192 18,865 20,792 27,190 29,783 34,220

Investments & Acquisition - - - - - - - -

Non-operating Income (4,979) 811 680 1,136 2,375 (99) 359 819

INVESTING CASH FLOW ( b ) (5,923) (1,259) (1,306) (524) 830 (1,599) (1,141) (681)

Debt Issuance/(Repaid) (18) - - - 180 - - -

Interest Expenses (33) (35) (7) (41) (17) (1,063) (957) (425)

FCFE 8,463 12,554 16,186 18,824 20,955 26,127 28,826 33,795

Share Capital Issuance - - - - - - - -

Dividend (4,676) (6,789) (9,980) (13,134) (35,563) (15,581) (18,774) (22,138)

Others (813) 168 20 - - - - -

FINANCING CASH FLOW ( c ) (5,540) (6,656) (9,966) (13,174) (35,400) (16,644) (19,731) (22,563)

NET CASH FLOW (a+b+c) (2,005) 6,744 6,906 6,826 (12,233) 10,447 10,411 12,476

EO Items, Others (2,542) 2,940 1,132 5,413 (9,177) (134) - -

Closing Cash & Equivalents 4,996 8,800 14,574 15,988 12,932 23,513 33,923 46,399

Key Ratios Particulars CY15 CY16 CY17 CY18 CY19P CY20E CY21E CY22E

PROFITABILITY (%)

GPM 57.5 57.5 56.8 59.4 57.8 56.5 57.4 58.0

EBITDA Margin 20.3 22.6 22.5 24.4 23.7 23.8 24.4 25.0

EBIT Margin 17.5 20.3 20.8 23.8 23.1 23.3 24.5 25.6

APAT Margin 11.9 12.3 13.1 14.9 16.1 16.8 17.8 19.0

RoE 34.4 36.9 39.0 47.4 70.8 100.1 88.3 81.3

RoIC (or Core RoCE) 29.0 36.4 42.2 57.9 75.0 70.7 69.1 77.6

RoCE 22.5 24.4 24.8 29.5 37.6 44.0 42.7 41.7

EFFICIENCY

Tax Rate (%) 30.8 35.2 33.4 33.8 25.2 25.2 25.2 25.2

Fixed Asset Turnover (x) 1.6 1.7 1.8 1.9 2.1 2.2 2.4 2.6

Inventory (days) 36.7 37.5 32.9 31.2 37.9 33.5 33.2 32.9

Debtors (days) 3.5 3.9 3.2 4.0 3.7 3.7 3.7 3.7

Other Current Assets (days) 10.2 8.7 8.2 7.2 6.5 7.3 7.3 7.3

Payables (days) 33.1 31.9 35.9 40.1 44.1 45.1 44.1 43.4

Other Current Liab & Provns (days) 32.9 22.7 18.5 19.9 19.3 17.9 17.7 17.5

Cash Conversion Cycle (days) (15.5) (4.4) (10.1) (17.5) (15.3) (18.5) (17.7) (17.1)

Net D/E (x) (0.2) (0.3) (0.4) (0.4) (0.6) (0.9) (1.0) (1.1)

PER SHARE DATA (Rs)

EPS 101.0 116.7 135.7 174.5 206.0 237.6 278.2 328.0

CEPS 137.0 153.4 171.2 209.4 238.8 271.0 312.8 363.5

Dividend 48.5 58.5 86.0 113.0 306.0 161.6 194.7 229.6

Book Value 292.2 340.4 354.8 381.0 200.4 274.3 355.4 451.2

VALUATION

P/E (x) 172.9 149.6 128.7 100.0 84.8 73.5 62.8 53.2

P/BV (x) 59.7 51.3 49.2 45.8 87.1 63.6 49.1 38.7

EV/EBITDA (x) 100.7 80.4 73.4 59.5 56.4 50.6 44.3 38.7

EV/Revenues (x) 20.4 18.1 16.5 14.5 13.4 12.1 10.8 9.7

OCF/EV (%) 0.6 0.9 1.1 1.3 1.4 1.7 1.9 2.2

FCF/EV (%) 0.5 0.7 1.0 1.1 1.2 1.6 1.8 2.0

FCFE/Mkt Cap (%) 0.5 0.7 1.0 1.1 1.2 1.6 1.7 2.0

Dividend Yield (%) 0.3 0.3 0.5 0.6 1.8 0.9 1.1 1.3

Source: Company, HSIE Research

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Nestle India: Results Review 1QCY20

Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: >10% Downside return potential

Date CMP Reco Target

13-Apr-20 16,844 REDUCE 14,042

14-Apr-20 16,610 REDUCE 14,042

13-May-20 17,462 REDUCE 14,042

RECOMMENDATION HISTORY

4,000

6,000

8,000

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14,000

16,000

18,000

20,000

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Nestle TP

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11

Nestle India: Results Review 1QCY20

HDFC securities

Institutional Equities

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