cy16 nestle india - business...

10
12 May 2016 1QCY16 Results Update | Sector: Consumer Nestle India BSE SENSEX S&P CNX CMP: INR5,704 TP: INR6,000 (+5%) Neutral 25,790 7,900 Bloomberg NEST IN Equity Shares (m) 96.4 M.Cap.(INR b)/(USD b) 549.9 / 8.3 52-Week Range (INR) 7,327/4,990 1, 6, 12 Rel. Per (%) -6/-6/-11 Avg Val, (INR m) 461 Free float (%) 37.2 Financials & Valuations (INR b) Y/E Dec 2015 2016E 2017E Net Sales 81.8 95.4 110.6 EBITDA 16.5 18.8 22.6 PAT 11.6 10.9 13.1 EPS (INR) 119.9 113.0 136.2 Gr. (%) -7.3 -5.7 20.5 BV/Sh (INR) 292.3 330.8 379.8 RoE (%) 40.9 36.3 38.3 RoCE (%) 40.7 36.3 38.2 P/E (x) 47.6 50.5 41.9 P/BV (x) 19.5 17.2 15.0 Estimate change +5 to 7% TP change +3% Rating change Margins surprise, gradual recovery ahead Nestle India’s 1QCY16 operating performance was above estimate: Net sales declined 8.4% YoY to INR23b (est. INR22.6b). EBITDA declined 13.7% YoY to INR5.2b (est. INR4.7b) and adjusted PAT declined 17.6% YoY to INR3.1b (est. INR2.7b). Exports declined 4.8% YoY, driven by Maggi issue. While Maggi Noodles was re-launched on 9 th November’2015 it will take time before it covers the entire distribution reach of Nestle. Moreover, for few months since launch only Masala variant of Maggi was available followed by Chicken variant in Feb’16, and Atta and oats variants in April 2016. Reported gross margin declined 50bp YoY to 57.1%. Higher staff costs (up 190bp YoY to 10.8%) were partly offset by decline in other expenses (up 100bp YoY to 23.7%) resulting in EBITDA margin contraction of 140bp YoY to 22.6% (est. 21.0%). EBITDA declined 13.7% YoY to INR5.2b (est. INR4.7b). Adj. PAT declined 17.6% YoY to INR3.1b (est. INR2.7b). Sequential Sales, EBITDA and PAT (half of 4QCY15 did not have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation and view: We increase our EPS estimates by 5-7% for CY16/ CY17 to account for the margin beat as well as lower capex numbers now assumed. We are highly encouraged by new CEO’s statements in the past few months regarding (1) Nestle India gradually getting back to double-digit sales growth, mainly led by volumes, (2) Willingness to go for price cuts wherever appropriate, and (3) Likely higher spending on advertising and promotion. However it needs to be noted that: (a) Volume and sales growth rates even in non-noodle segments declined by 7% in CY15 and blended average realizations across all segments grew by a disconcertingly high 7% for that year despite benign raw material costs and all time high gross margins which indicate significant non Maggi issues as well on the sales front and (b) Strategic initiatives for long term growth will likely have negative impact on EBITDA margins for the medium term given the overt emphasis on profitability for the last few years. The stock is fairly valued at 41.9x CY17 EPS. Maintain Neutral with a revised TP of INR6,000 based on 44xCY17 EPS. Quarterly performance (INR Million) Y/E December CY15 CY16E Estimate Var. 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 1QE Net Sales 25,068 19,338 17,362 19,464 22,957 24,366 22,918 24,688 81,233 94,929 22,561 1.8% YoY Change (%) 8.4 -20.1 -32.1 -22.6 -8.4 26.0 32.0 26.8 -17.2 16.9 -10.0 COGS 10,626 8,553 7,429 8,082 9,851 10,729 10,081 10,627 34,689 41,287 9,902 -0.5% Gross Profit 14,442 10,785 9,934 11,383 13,106 13,638 12,837 14,061 46,544 53,642 12,660 Margin (%) 57.6 55.8 57.2 58.5 57.1 56.0 56.0 57.0 57.3 56.5 56.1 Operating Exp 8,443 7,183 7,059 7,892 7,927 8,905 9,043 9,429 30,577 35,303 7,918 0.1% EBITDA 6,000 3,602 2,874 3,491 5,180 4,733 3,794 4,632 15,967 18,339 4,741 9.2% Margins (%) 23.9 18.6 16.6 17.9 22.6 19.4 16.6 18.8 19.7 19.3 21.0 YoY Growth (%) 23.5 -26.1 -46.2 -36.0 -13.7 31.4 32.0 32.7 -22.2 14.9 -21.2 Depreciation 950 720 906 897 891 922 933 932 3,473 3,678 1,017 Interest 34 1 0 -2 38 15 15 5 33 74 15 Other income 352 533 334 403 416 453 417 516 1,621 1,803 394 PBT 5,367 3,414 2,302 2,999 4,666 4,250 3,264 4,211 14,083 16,390 4,103 13.7% Tax 1,663 1,093 637 913 1,614 1,381 1,061 1,435 4,305 5,491 1,375 Rate (%) 31.0 32.0 27.7 30.4 34.6 32.5 32.5 34.1 30.6 33.5 33.5 Adjusted PAT 3,704 2,322 1,666 2,086 3,052 2,869 2,203 2,776 9,778 10,900 2,729 11.8% YoY Change (%) 26.4 -21.9 -49.1 -36.7 -17.6 23.6 32.3 33.1 -21.6 11.5 -26.7 E: MOSL Estimates CY16 CY15 Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. Krishnan Sambamoorthy ([email protected]); +91 22 3982 5428 Vishal Punmiya ([email protected]); +91 22 3980 4261

Upload: others

Post on 13-May-2020

5 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

12 May 2016

1QCY16 Results Update | Sector: Consumer

Nestle India

BSE SENSEX S&P CNX CMP: INR5,704 TP: INR6,000 (+5%) Neutral 25,790 7,900 Bloomberg NEST IN Equity Shares (m) 96.4 M.Cap.(INR b)/(USD b) 549.9 / 8.3

52-Week Range (INR) 7,327/4,990 1, 6, 12 Rel. Per (%) -6/-6/-11 Avg Val, (INR m) 461 Free float (%) 37.2 Financials & Valuations (INR b) Y/E Dec 2015 2016E 2017E Net Sales 81.8 95.4 110.6 EBITDA 16.5 18.8 22.6 PAT 11.6 10.9 13.1 EPS (INR) 119.9 113.0 136.2 Gr. (%) -7.3 -5.7 20.5 BV/Sh (INR) 292.3 330.8 379.8 RoE (%) 40.9 36.3 38.3 RoCE (%) 40.7 36.3 38.2 P/E (x) 47.6 50.5 41.9 P/BV (x) 19.5 17.2 15.0

Estimate change +5 to 7%

TP change +3% Rating change

Margins surprise, gradual recovery ahead Nestle India’s 1QCY16 operating performance was above estimate: Net sales

declined 8.4% YoY to INR23b (est. INR22.6b). EBITDA declined 13.7% YoY to INR5.2b (est. INR4.7b) and adjusted PAT declined 17.6% YoY to INR3.1b (est. INR2.7b). Exports declined 4.8% YoY, driven by Maggi issue. While Maggi Noodles was re-launched on 9th November’2015 it will take time before it covers the entire distribution reach of Nestle. Moreover, for few months since launch only Masala variant of Maggi was available followed by Chicken variant in Feb’16, and Atta and oats variants in April 2016.

Reported gross margin declined 50bp YoY to 57.1%. Higher staff costs (up 190bp YoY to 10.8%) were partly offset by decline in other expenses (up 100bp YoY to 23.7%) resulting in EBITDA margin contraction of 140bp YoY to 22.6% (est. 21.0%). EBITDA declined 13.7% YoY to INR5.2b (est. INR4.7b). Adj. PAT declined 17.6% YoY to INR3.1b (est. INR2.7b). Sequential Sales, EBITDA and PAT (half of 4QCY15 did not have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively.

Valuation and view: We increase our EPS estimates by 5-7% for CY16/ CY17 to account for the margin beat as well as lower capex numbers now assumed. We are highly encouraged by new CEO’s statements in the past few months regarding (1) Nestle India gradually getting back to double-digit sales growth, mainly led by volumes, (2) Willingness to go for price cuts wherever appropriate, and (3) Likely higher spending on advertising and promotion. However it needs to be noted that: (a) Volume and sales growth rates even in non-noodle segments declined by 7% in CY15 and blended average realizations across all segments grew by a disconcertingly high 7% for that year despite benign raw material costs and all time high gross margins which indicate significant non Maggi issues as well on the sales front and (b) Strategic initiatives for long term growth will likely have negative impact on EBITDA margins for the medium term given the overt emphasis on profitability for the last few years. The stock is fairly valued at 41.9x CY17 EPS. Maintain Neutral with a revised TP of INR6,000 based on 44xCY17 EPS.

Quarterly performance (INR Million)Y/E December CY15 CY16E Estimate Var.

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 1QENet Sales 25,068 19,338 17,362 19,464 22,957 24,366 22,918 24,688 81,233 94,929 22,561 1.8% YoY Change (%) 8.4 -20.1 -32.1 -22.6 -8.4 26.0 32.0 26.8 -17.2 16.9 -10.0COGS 10,626 8,553 7,429 8,082 9,851 10,729 10,081 10,627 34,689 41,287 9,902 -0.5%Gross Profit 14,442 10,785 9,934 11,383 13,106 13,638 12,837 14,061 46,544 53,642 12,660 Margin (%) 57.6 55.8 57.2 58.5 57.1 56.0 56.0 57.0 57.3 56.5 56.1Operating Exp 8,443 7,183 7,059 7,892 7,927 8,905 9,043 9,429 30,577 35,303 7,918 0.1%EBITDA 6,000 3,602 2,874 3,491 5,180 4,733 3,794 4,632 15,967 18,339 4,741 9.2% Margins (%) 23.9 18.6 16.6 17.9 22.6 19.4 16.6 18.8 19.7 19.3 21.0

YoY Growth (%) 23.5 -26.1 -46.2 -36.0 -13.7 31.4 32.0 32.7 -22.2 14.9 -21.2Depreciation 950 720 906 897 891 922 933 932 3,473 3,678 1,017Interest 34 1 0 -2 38 15 15 5 33 74 15Other income 352 533 334 403 416 453 417 516 1,621 1,803 394PBT 5,367 3,414 2,302 2,999 4,666 4,250 3,264 4,211 14,083 16,390 4,103 13.7%Tax 1,663 1,093 637 913 1,614 1,381 1,061 1,435 4,305 5,491 1,375 Rate (%) 31.0 32.0 27.7 30.4 34.6 32.5 32.5 34.1 30.6 33.5 33.5Adjusted PAT 3,704 2,322 1,666 2,086 3,052 2,869 2,203 2,776 9,778 10,900 2,729 11.8% YoY Change (%) 26.4 -21.9 -49.1 -36.7 -17.6 23.6 32.3 33.1 -21.6 11.5 -26.7E: MOSL Estimates

CY16CY15

Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Krishnan Sambamoorthy ([email protected]); +91 22 3982 5428 Vishal Punmiya ([email protected]); +91 22 3980 4261

Page 2: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

Nestle India

12 May 2016 2

Key quarterly charts

Exhibit 1: Domestic sales declined 21.3% YoY in 1QCY16

Source: Company, MOSL

Exhibit 2: …while Exports declined 4.8%

Source: Company, MOSL

Exhibit 3: Reported gross margins contracted 50bp YoY

Source: Company, MOSL

Exhibit 4: ..while reported EBITDA margin contracted 140bp YoY

Source: Company, MOSL

Exhibit 5: Recent launches along with 4 variants of Maggi noodles

Source: Company, MOSL

19.5

18

.7

20.2

20

.4

21.0

20

.4

21.8

21

.2

21.7

22

.4

24.0

23

.6

23.3

17

.8 15

.9

17.9

21.3

13.7 13.7 7.6 9.6 7.7 9.2 8.0 3.7 3.4

9.7 9.9 11.3 7.6

(20.6)

(33.8) (24.0)

(8.7)

Mar

-12

Jun-

12Se

p-12

Dec-

12M

ar-1

3Ju

n-13

Sep-

13De

c-13

Mar

-14

Jun-

14Se

p-14

Dec-

14M

ar-1

5Ju

n-15

Sep-

15De

c-15

Mar

-16

Domestic Sales (INR b) Sales Growth (%)

3.3 (1.1) 10.5

20.6

50.9 46.9

73.9

20.9

(4.4) 4.1

(3.9)

17.9 19.2

(12.7)

(6.4)

(2.2)

(4.8)

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13

Mar

-14

Jun-

14

Sep-

14

Dec-

14

Mar

-15

Jun-

15

Sep-

15

Dec-

15

Mar

-16

Exports Growth (%)

54.2

54.6

54.1

55.2

54.8

54.8

55.0

53.4

53.7

52.4

53.9

55.4

57.6

55.8

57.2

58.5

57.1

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13

Mar

-14

Jun-

14

Sep-

14

Dec-

14

Mar

-15

Jun-

15

Sep-

15

Dec-

15

Mar

-16

Gross Margins (%)

22.3

21.6

21.0

23.0

23.7

22.0

21.0

20.8

21.0

20.1

20.9

21.7

23.9

18.6

16.6

17.9

22.6

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13

Mar

-14

Jun-

14

Sep-

14

Dec-

14

Mar

-15

Jun-

15

Sep-

15

Dec-

15

Mar

-16

EBITDA Margin (%)

Page 3: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

Nestle India

12 May 2016 3

Valuation and view We increase our EPS estimates by 5-7% for CY16/ CY17 to account for the

margin beat as well as lower capex numbers now assumed. We are highlyencouraged by new CEO’s statements in the past few months regarding (1)Nestle India gradually getting back to double-digit sales growth, mainly led byvolumes, (2) Willingness to go for price cuts wherever appropriate, and (3) Likelyhigher spending on advertising and promotion.

However it needs to be noted that: (a) Volume and sales growth rates even innon-noodle segments declined by 7% in CY15 and blended average realizationsacross all segments grew by a disconcertingly high 7% for that year despitebenign raw material costs and all time high gross margins which indicatesignificant non Maggi issues as well on the sales front and (b) Strategic initiativesfor long term growth will likely have negative impact on EBITDA margins for themedium term given the overt emphasis on profitability for the last few years.

The stock is fairly valued at 41.9x CY17 EPS. Maintain Neutral with a revised TPof INR6,000 based on 44xCY17 EPS.

Exhibit 6: Revise estimates upwards by 5-7% for CY16/CY17 New Old % Change

INR M 2016E 2017E 2016E 2017E 2016E 2017E Net Sales 94,929 110,074 94,929 110,074 0.0% 0.0% EBITDA 18,339 22,075 17,588 20,997 4.3% 5.1% Adjusted PAT 10,900 13,133 10,325 12,223 5.6% 7.4%

Source: Company, MOSL

Exhibit 7: Nestle P/E (x)

Source: Company, MOSL

Exhibit 8: Nestle P/E premium vs. Sensex

Source: Company, MOSL

50.5

59.9

35.3

19.4 13.0

28.0

43.0

58.0

73.0

Apr-

06

Jul-0

7

Oct

-08

Jan-

10

Apr-

11

Jul-1

2

Oct

-13

Jan-

15

Apr-

16

PE (x) Peak(x) Avg(x) Min(x)207.7

112.2

-500

50100150200250

Apr-

06

Jul-0

7

Oct

-08

Jan-

10

Apr-

11

Jul-1

2

Oct

-13

Jan-

15

Apr-

16

Nestle PE Relative to Sensex PE (%) LPA (%)

Page 4: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

Nestle India

12 May 2016 4

Exhibit 9: Valuation Matrix of coverage universe

Company Reco Price Mkt Cap

(USD M) EPS Growth YoY (%) P/E (x) EV/EBITDA (x) ROE (%) Div. (%)

(INR) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY16 Consumer Asian Paints Neutral 927 13,338 25.0 15.8 11.3 50.0 43.1 38.8 33.3 28.8 25.7 34.4 1.1 Britannia Buy 2,936 5,284 49.9 17.5 13.9 40.9 34.8 30.6 28.5 23.6 20.2 57.8 0.9 Colgate Neutral 837 3,416 6.4 11.6 13.6 38.3 34.3 30.2 23.5 21.3 19.1 72.1 1.8 Dabur* Neutral 291 7,683 17.5 15.5 13.8 40.8 35.3 31.1 32.9 28.3 25.0 33.6 0.8 Emami* Buy 1,081 3,680 16.7 15.5 19.5 43.3 37.5 31.4 36.5 29.9 25.1 39.9 0.7 Godrej Consumer Neutral 1,438 7,344 26.1 22.3 15.1 42.8 35.0 30.4 32.9 26.2 23.5 23.9 0.7 GSK Consumer Buy 6,059 3,823 20.0 13.0 10.7 36.4 32.2 29.1 25.8 22.6 19.7 30.5 1.1 Hind. Unilever Neutral 853 27,695 6.1 11.7 13.9 45.3 40.5 35.6 31.4 28.1 24.8 112.5 2.0 ITC Buy 319 38,467 2.7 13.1 14.0 25.9 22.9 20.1 16.9 15.1 13.4 30.4 2.5 Jyothy Labs Buy 319 867 26.4 -8.7 12.6 35.9 39.4 34.9 29.5 24.9 22.1 19.6 1.3 Marico* Neutral 254 4,912 23.7 14.6 16.6 46.2 40.3 34.5 30.6 27.0 23.1 36.2 1.3 Nestle Neutral 5,704 8,252 -7.3 -5.7 20.5 47.6 50.5 41.9 33.4 28.9 23.8 40.9 0.9 Page Industries Buy 12,999 2,176 21.0 25.0 31.3 61.1 48.9 37.2 38.2 31.0 23.9 46.9 0.7 Pidilite Inds. Buy 605 4,651 48.5 10.2 15.1 40.6 36.9 32.1 25.4 22.4 19.3 29.8 0.7 P&G Hygiene Buy 6,463 3,148 19.8 12.0 19.7 50.7 45.2 37.8 33.9 29.1 23.5 31.2 1.0 Radico Khaitan Buy 89 178 -2.6 14.7 21.0 13.8 12.1 10.0 9.8 8.5 7.3 9.3 1.1 United Spirits Buy 2,676 5,835 LP 76.9 46.6 93.1 52.6 35.9 43.1 31.2 23.3 48.1 0.0 Retail Jubilant Foodworks Buy 1,179 1,160 6.8 48.0 41.2 65.1 44.0 31.2 26.3 18.9 14.0 16.1 0.3 Shopper's Stop Neutral 367 452 20.3 54.3 45.4 62.4 40.4 27.8 14.6 12.2 9.5 6.2 0.4 Titan Company Neutral 374 4,982 -11.7 17.0 15.3 45.7 39.1 33.9 36.7 28.6 24.7 21.8 0.7

Note: For Nestle FY16 means CY15 Source: Company, MOSL

Page 5: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

Nestle India

12 May 2016 5

Story in chart

Exhibit 10: Sales declined 17% in CY15 due to Maggi issue

Source: Company, MOSL

Exhibit 11: EBITDA margin declined YoY in CY15

Source: Company, MOSL

Exhibit 12: Rising volume contribution of Prepared Dishes (%)

Source: Company, MOSL

Exhibit 13: Milk Products contribution to revenues improved in CY14 (%)

Source: Company, MOSL

Exhibit 14: Milk Products grew just 2% in CY15

Source: Company, MOSL

Exhibit 15: Prepared Dishes slowed down in CY15

Source: Company, MOSL

14.5 6.6

11.4 4.1

11.4 11.4

23.9 22.6 16.8

22.1 20.311.8 9.3 8.0

(16.8)

CY01

CY02

CY03

CY04

CY05

CY06

CY07

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

Price Growth (%) Sales Growth (%)

53.0 51.8 51.2 52.1

51.0 51.8 54.3 54.3 53.6

56.9

19.5 20.1 20.2 20.5 20.2

21.0

22.3 22.2 21.3

20.1

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15

Gross Margin (%) EBITDA Margin (%)

37.6 34.6 33.2 31.2 30.3 29.7 45.5

6.5 6.3 6.0 5.6 6.0 5.4 7.6

43.6 46.3 49.1 52.6 53.5 55.8 35.5

12.4 12.8 11.8 10.6 10.2 9.0 11.4

CY09 CY10 CY11 CY12 CY13 CY14 CY15

Milk Products/ Nutrition BeveragesPrepared Dishes Chocolate & Conf.

44.3 43.5 43.7 45.0 43.4 45.2 55.4

15.4 14.1 13.9 13.1 14.1 13.2 15.8

25.6 27.1 28.1 28.3 28.8 29.2 15.6 14.8 15.3 14.3 13.6 13.7 12.4 13.2

CY09 CY10 CY11 CY12 CY13 CY14 CY15

Milk Products/ Nutrition BeveragesPrepared Dishes Chocolate & Conf.

9.4

22.6 23.0 19.2 20.1 20.7

15.2

5.5

12.4

2.1

-10.0

0.0

10.0

20.0

30.0

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15

Volume Growth (%) Price Growth (%) Sales Growth (%)

19.2 30.6

34.7

26.9 29.2 24.912.8 11.0 9.7

(55.6)

(60.0) (50.0) (40.0) (30.0) (20.0) (10.0)

- 10.0 20.0 30.0

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15

Volume Growth (%) Price Growth (%) Sales Growth (%)

Page 6: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

Nestle India

12 May 2016 6

Financials and Valuations Income Statement (INR Million) Y/E Dec 2010 2011 2012 2013 2014 2015 2016E 2017E Net Sales 62,736 75,146 83,345 91,011 98,548 81,753 95,399 110,608 Change (%) 21.8 19.8 10.9 9.2 8.3 -17.0 16.7 15.9 EBITDA 12,685 15,765 18,580 20,196 21,013 16,466 18,809 22,609 EBITDA Margin (%) 20.2 21.0 22.3 22.2 21.3 20.1 19.7 20.4 Depreciation 1,278 1,533 2,772 3,300 3,375 3,473 3,678 4,227 EBIT 11,408 14,232 15,808 16,896 17,638 12,994 15,131 18,382 Interest 11 51 266 365 142 33 74 17 Other Income 238 272 310 831 873 1,101 1,333 1,383 Extraordinary items 0 0 0 0 0 0 0 0 PBT 11,635 14,452 15,852 17,362 18,368 14,062 16,390 19,748 Tax 3,264 4,264 4,847 5,609 5,897 2,504 5,491 6,616 Tax Rate (%) 28.1 29.5 30.6 32.3 32.1 17.8 33.5 33.5 Min. Int. & Assoc. Share 0 0 0 0 0 0 0 0 Reported PAT 8,187 9,616 10,679 11,171 11,847 5,633 9,891 12,023 Adjusted PAT 8,370 10,189 11,006 11,753 12,472 11,558 10,900 13,133 Change (%) 20.0 21.7 8.0 6.8 6.1 -7.3 -5.7 20.5

Balance Sheet (INR Million) Y/E Dec 2010 2011 2012 2013 2014 2015 2016E 2017E Share Capital 964 964 964 964 964 964 964 964 Reserves 7,590 11,775 17,020 22,723 27,408 27,214 30,928 35,650 Net Worth 8,554 12,740 17,984 23,687 28,372 28,178 31,892 36,614 Debt 0 9,709 10,502 11,872 196 177 150 150 Deferred Tax 333 502 1,621 2,155 2,227 1,729 1,894 2,092 Total Capital Employed 8,887 22,950 30,107 37,714 30,795 30,085 33,936 38,856 Gross Fixed Assets 18,547 25,522 44,276 49,032 50,090 51,174 55,421 62,005 Less: Acc Depreciation 8,420 9,765 12,233 15,339 18,323 22,195 25,873 30,100 Net Fixed Assets 10,127 15,758 32,043 33,693 31,766 28,979 29,549 31,905 Capital WIP 3,489 13,718 3,441 2,947 2,448 2,308 2,308 2,308 Investments 1,507 1,344 3,649 8,511 8,118 13,249 13,249 13,249 Current Assets 10,460 13,199 12,507 17,992 15,863 16,269 20,902 26,731 Inventory 5,760 7,340 7,456 7,359 8,441 8,208 10,251 11,914 Debtors 633 1,154 876 843 991 784 1,352 1,567 Cash & Bank 2,553 2,272 2,370 7,494 4,458 4,996 7,150 10,978 Loans & Adv, Others 1,514 2,432 1,806 2,296 1,972 2,281 2,150 2,272 Curr Liabs & Provns 16,696 21,067 21,532 25,429 27,400 30,720 32,072 35,337 Curr. Liabilities 7,621 10,095 10,974 11,356 11,383 12,095 12,132 11,847 Provisions 9,075 10,972 10,558 14,073 16,017 18,625 19,940 23,490 Net Current Assets -6,236 -7,869 -9,025 -7,437 -11,537 -14,451 -11,170 -8,606Total Assets 8,887 22,951 30,107 37,714 30,795 30,085 33,935 38,856E: MOSL Estimates

Page 7: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

Nestle India

12 May 2016 7

Financials and Valuations Ratios Y/E Dec 2010 2011 2012 2013 2014 2015 2016E 2017E Basic (INR) EPS 86.8 105.7 114.1 121.9 129.4 119.9 113.0 136.2 Cash EPS 100.1 121.6 142.9 156.1 164.4 155.9 151.2 180.1 Book Value 88.7 132.1 186.5 245.7 294.3 292.3 330.8 379.8 DPS 48.5 48.5 48.5 48.5 63.0 48.5 55.0 65.0 Payout (incl. Div. Tax.) 55.9 45.9 42.5 39.8 48.7 40.5 48.7 47.7 Valuation(x) P/E 44.1 47.6 50.5 41.9 Cash P/E 34.7 36.6 37.7 31.7 Price / Book Value 19.4 19.5 17.2 15.0 EV/Sales 5.5 6.5 5.6 4.8 EV/EBITDA 26.2 33.4 28.9 23.8 Dividend Yield (%) 1.1 0.9 1.0 1.1 Profitability Ratios (%) RoE 116.5 95.7 71.6 56.4 47.9 40.9 36.3 38.3 RoCE 116.6 66.0 43.9 37.5 39.2 40.7 36.3 38.2 RoIC 662 322 89 63 77 96 114 121 Turnover Ratios (%) Asset Turnover (x) 8.4 4.7 3.1 2.7 2.9 2.7 3.0 3.0 Debtors (No. of Days) 4 5 4 3 4 3 5 5 Leverage Ratios (%) Net Debt/Equity (x) -0.3 0.6 0.5 0.2 -0.2 -0.2 -0.2 -0.3

Cash Flow Statement (INR Million) Y/E Dec 2010 2011 2012 2013 2014 2015 2016E 2017E Adjusted EBITDA 12,685 15,765 18,580 20,196 21,013 16,466 18,809 22,609 Non cash opr. exp (inc) -493 -426 -626 -585 -876 -121 -470 -534 (Inc)/Dec in Wkg. Cap. -1,581 -1,351 -1,254 -3,536 -1,065 -3,451 1,126 -1,264 Tax Paid -3,252 -4,161 -3,728 -5,075 -5,824 -2,899 -5,326 -6,417 Other operating activities 416 458 367 857 1,217 1,588 1,729 1,901 CF from Op. Activity 7,776 10,284 13,338 11,857 14,465 11,584 15,868 16,294 (Inc)/Dec in FA & CWIP -4,832 -17,204 -8,476 -4,262 -559 -944 -4,248 -6,584 Free cash flows 2,944 -6,919 4,862 7,594 13,906 10,640 11,621 9,711 (Pur)/Sale of Invt 526 163 -2,305 -4,862 393 -5,131 0 0 Others 0 0 0 0 0 0 0 0 CF from Inv. Activity -4,306 -17,041 -10,781 -9,125 -166 -6,075 -4,248 -6,584 Inc/(Dec) in Net Worth 0 0 0 0 0 0 0 0 Inc / (Dec) in Debt -6 9,709 793 1,370 -11,676 -18 -27 0 Interest Paid 0 0 0 0 0 0 0 0 Divd Paid (incl Tax) & Others -4,797 -5,020 -5,027 -4,335 -5,354 -8,678 -3,729 -4,608 CF from Fin. Activity -4,803 4,689 -4,234 -2,965 -17,030 -8,696 -3,756 -4,608 Inc/(Dec) in Cash -1,334 -2,068 -1,677 -233 -2,731 -3,187 7,865 5,102 Add: Opening Balance 1,556 2,553 2,272 2,370 7,494 4,458 4,996 7,150 Closing Balance 222 485 595 2,136 4,762 1,271 12,860 12,252 E: MOSL Estimates

Page 8: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

Nestle India

12 May 2016 8

Corporate profile Exhibit 1: Sensex rebased

Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%)

Mar-16 Dec-15 Mar-15

Promoter 62.8 62.8 62.8

DII 5.7 5.4 4.5

FII 14.4 14.9 12.5

Others 17.1 17.0 20.2

Note: FII Includes depository receipts Source: Capitaline

Exhibit 3: Top holders Holder Name % Holding

LIC of India 3.3 Arisaig Partners (Asia) Pte Ltd a/c Arisaig India Fund Limited 1.9

Aberdeen Global Indian Equity Limited 1.6

Source: Capitaline Exhibit 4: Top management

Name Designation

Suresh Narayanan Chairman & Managing Director

Shobinder Duggal Director (Finance & Control)

B Murli Company Secretary

Source: Capitaline

Exhibit 5: Directors Name Name

Suresh Narayanan Rajya Vardhan Kanoria*

Ravinder Narain* Shobinder Duggal

Swati A Piramal* Aristides Protonotarios

Ashok Kumar Mahindra*

*Independent

Exhibit 6: Auditors Name Type

A F Ferguson & Co Statutory

Ramanath Iyer & Co Cost Auditor

Source: Capitaline

Exhibit 7: MOSL forecast v/s consensus EPS (INR)

MOSL forecast

Consensus forecast Variation (%)

CY16 113.0 122.2 -7.5

CY17 136.2 147.4 -7.6

Source: Bloomberg

Company description Nestle India is the largest packaged food company in India. A subsidiary of Nestle S.A (63% share), the company has a diversified portfolio with strong brands like Maggi, Nescafe, Everyday, etc.

Page 10: CY16 Nestle India - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · have Maggi sales) were up 17.9%, 48.4% and 46.3% respectively. Valuation

Nestle India

12 May 2016 10

Disclosures This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company (ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.

MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may educate investors on investments in such business . The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on twin parameters of performance & profitability of MOSt. MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt 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. The information contained herein is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412

Pending Regulatory inspections against Motilal Oswal Securities Limited: SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold inquiry and adjudge violation of SEBI Regulations; MOSL replied to the Show Cause Notice whereby SEBI granted us an opportunity of Inspection of Documents. Since all the documents requested by us were not covered we have requested to SEBI vide our letter dated June 23, 2015 to provide pending list of documents for inspection.

List of associate companies of Motilal Oswal Securities Limited -Click here to access detailed report Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues Disclosure of Interest Statement NESTLE INDIA Analyst ownership of the stock No Served as an officer, director or employee No A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes

Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong: This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Kong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in 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: Varun Kumar Kadambari Balachandran [email protected] [email protected] Contact : (+65) 68189232 (+65) 68189233 / 65249115 Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931

Motilal Oswal Securities Ltd

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025 Phone: +91 22 3982 5500 E-mail: [email protected]