CMP 5002.00

Target Price 5452.00

ISIN: INE239A01016

FEBRUARY 26th

2014

NESTLE INDIA LIMITED

Result Update: Q4 CY13

BUYBUYBUYBUY

Index Details

Stock Data

Sector Packaged foods

BSE Code 500790

Face Value 10.00

52wk. High / Low (Rs.) 5864.85/4410.00

Volume (2wk. Avg. Q.) 3256

Market Cap (Rs. in mn.) 482292.84

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS CY13A CY14E CY15E

Net Sales 91010.50 98655.38 105561.26

EBITDA 20514.10 22430.22 23925.44

Net Profit 11171.30 11982.74 12739.29

EPS 115.86 124.28 132.12

P/E 43.17 40.25 37.86

Shareholding Pattern (%)

1 Year Comparative Graph

NESTLE INDIA LTD BSE SENSEX

SYNOPSIS

Nestlé is the world's leading Nutrition, Health and

Wellness Company, started its journey in India in

1912 by entering into the dairy business and is one

the biggest players in FMCG segment.

The brand Nestle has 468 factories in 86 countries

with 339,397 employees working around the world

and has 2000+ brands.

The company’s net sales ramps up by 4.71% and

stood at a record Rs. 22629.70 million from Rs.

21611.20 million over the corresponding quarter

last year.

In Q4 CY13, Net profit jumps to Rs. 2816.60 millions

from Rs. 2789.30 millions over the corresponding

quarter ending of previous year.

The Company has recommended Final Dividend for

the year 2013 of Rs. 12.50 per equity shares on face

value of Rs. 10/- each.

During the end of 4th quarter CY13, Net Domestic

sales grew by 3.74% contributed by net realisations

and volume growth in certain products categories.

In Q4 CY13, Export sales grew by 20.92%

contributed largely by exports to affiliates and stood

to Rs. 1344.80 million against Rs. 1112.10 million in

Q4 CY12.

Net Sales and PAT of the company are expected to

grow at a CAGR of 8% and 6% over 2012 to 2015E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Nestle India Ltd 5002.00 482292.84 115.86 43.17 20.36 485.00

Glaxo Smithkline Consumer Ltd 4271.35 179633.90 119.62 35.71 9.64 0.00

Britannia Industries Ltd 889.35 106656.00 30.53 29.13 16.63 425.00

KRBL Ltd 44.50 10478.90 9.23 4.82 1.31 80.00

Recommendation & Analysis - ‘BUY’

For the 4th quarter of calendar year 2013, Nestle India Ltd posted a 5.57% growth in total income to Rs. 22948.70

million from Rs. 21737.60 million in previous year period. Profit before tax (PBT) at Rs. 4163.70 millions in Q4

CY13 compared to Rs. 4082.50 million in Q4 CY12, registered a growth of 1.99%. In the same quarter, Net profit

jumps to Rs. 2816.60 million against Rs. 2789.30 million in the corresponding quarter ending of previous year,

an increase of 0.98%. Net sales during the 4th quarter of CY13 were at Rs.22629.70 million increased by 4.71%

against Rs. 21611.20 million over the same quarter of previous year. Domestic sales have increased by 3.74%

mainly on account of net realisation and product mix. Exports Sales grew by 20.92% contributed largely by

exports. The company has maintained decent growth while protecting healthy margins. The growth dynamics in

some core products and categories like Maggi Noodles, Nescafe and Kit Kat has compensated the headwinds in

some of the other business.

During the end of CY 31st Dec 2013, the company’s net sales up by 9.20% and stood at Rs. 91010.50 million

against Rs. 83345.30 million over 31st Dec 2012. Net domestic sales contributed by net realisation and volume

growth in certain product categories as shown growth of 7.10% to Rs. 84357.70 million over Rs. 78765.70

million in corresponding previous year. Export sales grew by 47.10%, mainly due to export to affiliates and

stood to Rs. 6261.30 million against 4256.90 million. Growth in PAT ramps up by 4.61% and stood at Rs.

11171.30 million as against Rs 10679.30 million over the corresponding period of previous year. In the same

Calendar year of 1st Jan to 31st Dec 2013, Depreciation has increased 30 bps over the last year due to expansion

in production capacities. Consumer facing spends for domestic sales increased 25 bps.

Nestle India Ltd continues to be disciplined in driving its performance in line with the Nestlé Model of

profitable growth and resource efficiency. The company focused on premium and value-up ranges, while

protecting its current business base, as well as taking necessary decisions to gear up and makes the

organization more efficient to take the current and future trade evolution and competitive challenges. We

expect that the company surplus scenario is likely to continue for the next three years, will keep its growth

story in the coming quarters also. We expect the company to post a CAGR of 8% and 6% in its top-line and

bottom-line respectively. Hence, we recommend ‘BUY’ for ‘NESTLE INDIA LIMITED’ with a target price of

Rs. 5452.00 on the stock.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q4 CY13,

Nestle India Ltd is one the biggest players in FMCG

segment, has a presence in milk & nutrition,

beverages, prepared dishes & cooking aids &

chocolate & confectionery segments Increase in Net

Domestic sales and volume growth in certain

products and also in Exports sales, shows strong

Sales growth with positive impact of the rupee

depreciation has reported its financial results for the

quarter ended 31st DECEMBER, 2013.

The company has achieved a turnover of Rs. 22629.70 million for the 4th quarter of the calendar year 2013 as

against Rs. 21611.20 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 4919.90 millions and a net profit of Rs. 2816.60 million as against Rs. 5016.90 million and Rs.

2789.30 million reported respectively in the corresponding quarter of the previous year. The company has

reported an EPS of Rs. 29.21 for the 4th quarter as against an EPS of Rs. 28.93 in the corresponding quarter of the

previous year.

Break up of Expenditure:

During the quarter, total expenditure rose by 7 per cent mainly on account of increased cost of material

consumed by 7%, purchase of stock in trade 10%, whereas employee benefits and other expenditure grow by 6%

when compared with corresponding quarter of previous year. In Q4 CY13, total expenditure was at Rs. 18785.60

million as against Rs. 17556.20 million in Q4 CY12.

Break up of Expenditure Rs. in Millions

Q4 CY13 Q4 CY12

Cost of Materials Consumed 10437.30 9723.00

Purchase of Stock in Trade 293.40 267.90

Employee Benefits 1857.60 1750.00

Depreciation & Amortization 756.80 835.30

Other Expenses 5495.50 5175.50

Provision for Contingencies 82.70 131.00

Impairment Loss on Fixed

Assets 99.40 19.90

Months DEC-13 DEC-12 % Change

Net Sales 22629.70 21611.20 4.71

PAT 2816.60 2789.30 0.98

EPS 29.21 28.93 0.98

EBITDA 4919.90 5016.90 (1.93)

Latest Updates

• The Company has recommended Final Dividend for the year 2013 of Rs. 12.50 per equity shares on face value

of Rs. 10/- each.

• During the 4th quarter ended December 2013, Net domestic sales increased by 3.74% contributed by net

realisation and volume growth in certain product categories and stood to Rs. 84357.70 million over Rs.

78765.70 million in corresponding previous year.

• In Q4 CY13, Export sales grew by 20.92% contributed largely by exports to affiliates and stood to Rs. 1344.80

million against Rs. 1112.10 million in Q4 CY12.

COMPANY PROFILE

Nestlé is the world's leading Nutrition, Health and Wellness Company, founded in 1866 in Vevey, Switzerland as

an infant nutrition company by Henri Nestlé. It started its journey in India in 1912 by entering into the dairy

business. The culture of innovation and renovation within the Company and access to the Nestlé Group's

proprietary technology/Brands expertise and the extensive centralized Research and Development facilities

gives it a distinct advantage in these efforts. It helps the Company to create value that can be sustained over the

long term by offering consumers a wide variety of high quality, safe food products at affordable prices.

Nestle India, one the biggest players in FMCG segment, has a presence in milk & nutrition, beverages, prepared

dishes & cooking aids & chocolate & confectionery segments. Nestlé India manufactures products of truly

international quality under internationally famous brand names such as Nescafé, Maggi, Milky bar, Kit Kat, Bar-

One, Milkmaid and Nestea and in recent years the Company has also introduced products of daily consumption

and use such as Nestlé Milk, Nestlé Slim Milk, Nestlé Dahi and Nestlé Jeera Raita.

� Manufacturing Area and Brach offices:

Nestlé India has presence across India with 8 manufacturing facilities and 4 branch offices. The company set

up its first manufacturing facility at Moga (Punjab) in 1961 followed by its manufacturing facilities at Choladi

(Tamil Nadu), in 1967; Nanjangud (Karnataka), in 1989; Samalkha (Haryana), in 1993; Ponda and Bicholim

(Goa), in 1995 and 1997, respectively; and Pantnagar (Uttarakhand), in 2006. In 2012, Nestle India set up its

8th manufacturing facility at Tahliwal (Himachal Pradesh).

4 Branch Offices located at Delhi, Mumbai, Chennai and Kolkata help facilitate the sales and marketing

activities. The Nestlé India’s Head Office is located in Gurgaon, Haryana.

Global area:

• CHF 92 billion in sales in 2012

• 32 R&D and technology centres

• Nestlé is the world's leading Nutrition, Health and Wellness Company, more than 1 billion Nestlé products

sold every day. The brand Nestle has 468 factories in 86 countries with 339,397 employees working around

the world and has 2000+ brands. Nestlé’s premium sports nutrition business operates mostly in the US,

Canada, Western Europe, Australia, New Zealand and Japan

� Brands

Milk Products and Nutrition

• Milk Products

� Nestle Junior DAHEEZ

� Nestle MILKMAID Creations

� Nestle a+ milk

� Nestle ActiPlus Probiotic Dahi

� Nestle Creamy Vanilla

� Nestle Everyday Dairy Whitener

� Nestle Everyday Ghee

� Nestle Bhuna Jeera Raita

� Nestle Milkmaid

� Nestle NESLAC

� Nestle Real Fruit Yoghurts

� Nestle Slim Dahi

� Nestle Slim Milk

• Beverages

� Nescafe Classic

� Nescafe My First Cup

� Nescafe Cappuccino

� Nescafe Sunrise Premium

� Nescafe Sunrise

� Nestea Iced Tea

• Prepared Dishes and Cooking Aids

� Maggi 2-Minute Noodles

� Maggi Dumdaar Noodles

� Maggi Bhuna Masala

� Maggi Coconut Milk Powder

� Maggi Cuppa Mania

� Maggi HEALTHY SOUPS

� Maggi Magic CUBES

� Maggi Masala-ae-Magic

� Maggi Noodletz

� Maggi Vegetable Multigrainz Noodles

� Maggi Pizza Mazza

� Maggi Sauces

� Maggi Pazzta

� Vegetable Atta Noodles

� Maggi Pichko

� Maggi Maggi Imli Pichkoo Sauce.

• Chocolates and Confectionery

� Nestle Assorted gift packs

� Nestle Dark chocolate

� Nestle Dark chocolate Dry Fruits

� Nestle Selections Fine Chocolates

� Nestle Selections Panned Dry Fruits

� Nestle KITKAT

� Nestle BAR-ONE

� Nestle MUNCH

� Vending & Food Services

• Beverage Solutions

� Nescafe Premix

� Nescafe Sunrise Premix

� Nestea Cardamom Tea Premix

� Nestea Premium Cardamom Tea Premix

� Nestea Plain Tea Premix

� Nestea Masala Tea Premix

� EVERDAY Premix

� EVERDAY Low Sugar Premix

� Nestea Tea Bags

� Milkmaid Badam Milk Premix

� Nestle NESQUIK Premix

� Nescafe Frappe Premix

� Maggi Hot Cup Soup.

• Beverage Systems

� Nescafe Nan u Vend

� Nescafe Table Top Double Option

� Nescafe Table Top Triple/ Four Option

� Nescafe Table Top Six Option

� Nescafe Solution 8/60

� Nescafe EZ Care

� Food Service Products

• Beverages

� Nescafe Classic -100% pure instant coffee.

� Nescafe Sunrise Premium -Instant Coffee Chicory Mixture

� Nescafe Sunrise Extra -Instant Coffee Chicory Mixture

� Nescafe Classic -100% pure instant coffee.

• Culinary

� Maggi Snack Dressing

� Maggi 2 minute Masala Noodles

� Maggi Cuppa Mania

� Maggi Coconut Milk Powder

� Maggi Seasoning Mix

� Nestle Everyday Dairy Creamer.

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance sheet as at Dec 31, 2012-2015E

CY12A CY13A CY14E CY15E

I. EQUITY AND LIABILITIES:

A) Shareholders’ Funds:

a) Share Capital 964.20 964.20 964.20 964.20

b) Reserves and Surplus 17019.90 22723.30 28858.59 36073.24

Sub Total-Net worth 17984.10 23687.50 29822.79 37037.44

B) Non-Current Liabilities:

a) Long-term borrowings 10499.50 11894.80 13322.18 14654.39

b) Deferred Tax Liabilities [Net] 1620.80 2154.70 2844.20 3640.58

c) Long Term Provisions 10250.50 11933.90 13604.65 15237.20

Sub Total-Long term Liabilities 22370.80 25983.40 29771.03 33532.18

C) Current Liabilities:

a) Short-term borrowings 2.40 0.10 0.13 0.17

b) Trade Payables 5394.00 6330.40 7343.26 8297.89

c) Other Current Liabilities 5580.30 5002.50 5102.55 5153.58

d) Short Term Provisions 307.60 2138.80 2245.74 2335.57

Sub Total-Current Liabilities 11284.30 13471.80 14691.68 15787.20

TOTAL EQUITY AND LIABILITIES (A + B + C) 51639.20 63142.70 74285.50 86356.82

II. ASSETS:

D) Non-Current Assets:

Fixed Assets:

i. Tangible Assets 32042.70 33041.20 33768.11 34105.79

ii. Intangible Assets 3440.80 3599.00 3742.96 3855.25

a) Sub Total-Fixed Assets 35483.50 36640.20 37511.07 37961.04

b) Non Current Investments 0.00 2241.20 3600.74 5249.58

c) Long Term Loans and Advances 1254.50 1239.40 1388.13 1540.82

d) Other non- current Assets 0.00 4.70 5.17 5.64

Sub Total- Non-Current Assets 36738.00 40125.50 42505.10 44757.07

E) Current Assets:

a) Current Investments 3648.60 6269.60 9028.22 12910.36

b) Inventories 7455.80 7359.30 7580.08 7731.68

c) Trade Receivables 875.70 842.70 817.42 801.07

d) Cash and Bank Balances 2369.60 7493.60 12739.12 17962.16

e) Short Term Loans and Advances 541.50 1013.60 1540.67 2079.91

f) Other Current Assets 10.00 38.40 74.88 114.57

Sub Total- Current Assets 14901.20 23017.20 31780.39 41599.74

TOTAL ASSETS (D + E) 51639.20 63142.70 74285.50 86356.82

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) CY12A CY13A CY14E CY15E

Description 12m 12m 12m 12m

Net Sales 83345.30 91010.50 98655.38 105561.26

Other Income 310.30 830.90 1022.01 1124.21

Total Income 83655.60 91841.40 99677.39 106685.47

Expenditure -65173.40 -71327.30 -77247.16 -82760.03

Operating Profit 18482.20 20514.10 22430.22 23925.44

Interest -184.50 -572.50 -715.63 -846.58

Gross profit 18297.70 19941.60 21714.60 23078.86

Depreciation -2771.50 -3299.50 -3695.44 -4064.98

Exceptional Items 0.00 138.10 0.00 0.00

Profit Before Tax 15526.20 16780.20 18019.16 19013.87

Tax -4846.90 -5608.90 -6036.42 -6274.58

Net Profit 10679.30 11171.30 11982.74 12739.29

Equity capital 964.20 964.20 964.20 964.20

Reserves 17019.90 22723.30 28858.59 36073.24

Face value 10.00 10.00 10.00 10.00

EPS 110.76 115.86 124.28 132.12

Quarterly Profit & Loss Statement for the period of 30 JUNE, 2013 to 31 MARCH, 2014E

Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E

Description 3m 3m 3m 3m

Net sales 22227.10 23600.20 22629.70 23399.11

Other income 154.00 230.60 319.00 303.05

Total Income 22381.10 23830.80 22948.70 23702.16

Expenditure -17361.40 -18666.60 -18028.80 -18555.49

Operating profit 5019.70 5164.20 4919.90 5146.67

Interest -85.10 -99.60 -101.10 -116.27

Gross profit 4934.60 5064.60 4818.80 5030.40

Depreciation -886.60 -834.90 -756.80 -749.23

Exceptional Items 0.00 36.40 101.70 0.00

Profit Before Tax 4048.00 4266.10 4163.70 4281.17

Tax -1334.20 -1416.10 -1347.10 -1447.04

Net Profit 2713.80 2850.00 2816.60 2834.13

Equity capital 964.20 964.20 964.20 964.20

Face value 10.00 10.00 10.00 10.00

EPS 28.15 29.56 29.21 29.39

Ratio Analysis

Particulars CY12A CY13A CY14E CY15E

EPS (Rs.) 110.76 115.86 124.28 132.12

EBITDA Margin (%) 22.18 22.54 22.74 22.66

PBT Margin (%) 18.63 18.44 18.26 18.01

PAT Margin (%) 12.81 12.27 12.15 12.07

P/E Ratio (x) 45.16 43.17 40.25 37.86

ROE (%) 59.38 47.16 40.18 34.40

ROCE (%) 74.61 66.93 60.55 54.15

Debt Equity Ratio 0.58 0.50 0.45 0.40

EV/EBITDA (x) 26.09 23.51 21.50 20.16

Book Value (Rs.) 186.52 245.67 309.30 384.13

P/BV 26.82 20.36 16.17 13.02

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 5002.00, the stock P/E ratio is at 40.25 x CY14E and 37.86 x CY15E

respectively.

� Earning per share (EPS) of the company for the earnings for CY14E and CY15E is seen at Rs.124.28 and

Rs.132.12 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 8% and 6% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 21.50 x for CY14E and 20.16 x for CY15E.

� Price to Book Value of the stock is expected to be at 16.17 x and 13.02 x respectively for CY14E and CY15E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.5452.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

The Indian food processing industry accounts for 32 per cent of the country's total food market. Currently

growing at more than 10 per cent per annum, it is expected to touch US$ 194 billion by 2015 from a value of US$

121 billion in 2012, according to Deputy Director General, Indian Council of Agricultural Research (ICAR). The

packaged food sector in India is likely to double by 2015 to touch US$ 30 billion from the current US$ 15 billion,

owing to the rise in income, changing urban lifestyle and modern retail trade. Residents in urban areas are the

largest consumers of processed food, consuming 78 per cent of all packaged food in 2011.

The share of food processing export in total exports from India is 12 per cent. Indian agricultural and processed

food exports in the period April 2013–October 2013 stood at US$ 12,797.65 million as compared to US$

11,827.50 million during the same period last year, according to data released by the Agricultural and Processed

Food Products Export Development Authority (APEDA).

The food processing industries in India attracted foreign direct investments (FDI) worth US$ 3,776.57 million

during the period April 2000–September 2013, according to the latest data published by Department of

Industrial Policy and Promotion (DIPP).

With the growing media awareness, literacy rates and standard of living, people have grown more responsive

towards the health and hygiene standards associated with food products. There has been a shift witnessed in the

customers focus from price to quality in the recent years, particularly in the urban and a few semi urban areas.

Consumers have been drifting from openly or loosely sold food products to the consumption of hygienically

packaged fortified foods. The packaged food market in India has grown at a remarkable rate of 15.6% over the

period FY'2007- FY'2013. India packaged food industry has expanded at an unparalleled growth rate over the

last few years

Government Initiatives

� The Government of India has allowed 100 per cent FDI under the automatic route in the food processing

sector, in agri-products, milk and milk products, and marine and meat products. A 100 per cent tax

exemption is also allowed for five years, followed by 25 per cent tax exemption for the next five years for

new agro-processing industries.

� The Ministry has launched a Centrally Sponsored Scheme namely, National Mission on Food Processing

(NMFP) during the 12th Plan to be implemented through State/ UT Governments. During the period, the

government has also made a plan allocation of Rs 5,990 crore (US$ 968.36 million) to implement various

schemes for promotion and development of the food processing sector.

� The Ministry of Food Processing Industries and ‘Invest India' have entered into an agreement for the

setting up of an Investors' “Help Desk” for offering online support to investors, both domestic and

international, with regard to their queries, and guide them particularly at the initial stage of setting up

their units.

� With the objective of providing incentive to create integrated cold chain and preservation infrastructure

facilities in the country, the Ministry is implementing the Scheme of Integrated Cold Chain, Value Addition

& Preservation Infrastructure.

� The government plans to set up three mega food parks in the country during the next six months with

each project attracting an investment of Rs 4000.00–5000.00 million (US$ 64.65-80.81 million).

Road Ahead

India is the world's second largest producer of food next to China, and has the potential of being the biggest

backed by its food and agricultural sector. The total food production in India is likely to double in the next 10

years.

The Ministry of Food Processing Industries (MOFPI) has formulated a Vision 2015 Action Plan that includes

trebling the size of the food processing industry, raising the level of processing of perishables from 6 per cent to

20 per cent, increasing value addition from 20 per cent to 35 per cent, and enhancing India's share in global food

trade from 1.5 per cent to 3 per cent.

There is a need to proactively market India as an attractive destination. In terms of market size, India has a

domestic market of over a billion people, with 300 million middle class consumers. India's domestic food market

is estimated to reach US$ 258 billion by 2015

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

B. Anil Kumar Auto, IT & FMCG

Suhani Adilabadkar Pharma & Banking

M. Vinayak Rao Diversified

C. Bhagya Lakshmi Diversified

Firstcall India also provides

Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate

restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &

Execution, Project Financing, Venture capital, Private Equity and Financial

Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071

Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089

E-mail: info@firstcallindiaequity.com

www.firstcallindiaequity.com