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Stock Data

Sector FMCG

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 3650.00/2455.50

Volume (2 wk. Avg.) 4278

BSE Code 500790

Market Cap (Rs.In mn) 350968.8

Financials (Rs.in.mn) CY09 CY10E CY11E

Net Sales 51499.9 62887.6 71063.0

EBIDTA 10451.9 12782.3 14437.6

PAT 6550.0 8197.8 9215.3

EPS 67.93 85.02 95.57

P/E 53.58 42.81 38.09

Nestle India Ltd BUY F

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SYNOPSIS

• Nestlé India, one the biggest players in

FMCG segment, has a presence in milk &

nutrition, beverages, prepared dishes &

cooking aids & chocolate & confectionery

segments.

• During the quarter ended, the robust

growth of revenue is increased by 25.57%

Rs.16414.00 million.

• Company has introduced new product

“Nestle EXTRAFINO” milk and dark

chocolates in the premium range.

• Nestle India Ltd has accepted the proposal of

Speciality Foods India Pvt Ltd for acquisition

of its Healthcare Nutrition Business.

• Net Sales and PAT of the company are

expected to grow at a CAGR of 18% and

20% over 2008 to 2011E respectively.

1 Year Comparative Graph

Nestle India Ltd BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.3640.00 Rs.4113.00

Share Holding Pattern

Nov 4th, 2010

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Nestle India Ltd 3640.00 350968.8 75.52 48.20 60.37 485.00

ITC Ltd 175.50 1349062.1 5.84 30.05 9.63 1000.0

Dabur India Ltd 99.50 173202.0 2.47 40.28 23.09 200.00

HUL 296.00 645966.7 10.68 27.72 25.00 650.00

Investment Highlights

Q3 CY10 Results Update

FMCG major Nestle India has posted 19.59% growth in its net profit of Rs 2,185.60

million for the quarter ended Sep. 30, 2010 as compared to Rs 1,827.60 million for

the quarter ended Sep. 30, 2009. Net sales for the quarter is surged by 25.57% to

Rs.16414.00 million from Rs.13071.90 million as compared to same quarter

corresponding year. Total income has increased by 25.61% from Rs 13,110.30

million for the quarter ended Sep. 30, 2009 to Rs 16,468 million for the quarter

ended Sep. 30, 2010. The EPS of the company is stood at Rs.22.67for the quarter

ended Sep 30, 2010.

Quarterly Results - standalone (Rs in mn)

As At Sep-10 Sep-09 %change

Net sales 16414.00 13071.90 25.57

PAT 2185.60 1827.60 19.59

Basic EPS 22.67 18.95 19.59

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Break up of Expenditure

Declaration of second interim dividend

Nestle India Ltd has declared Second Interim Dividend for 2010 of Rs. 27.00 per

equity share of face value of Rs. 10.00 each.

Company Profile

Nestle has its presence in India for around nine decades, making it one of the oldest

company in India. Nestlé India is a subsidiary of Nestlé SA of Switzerland. The

company has its headquarters at Gurgaon near Delhi and has seven factories spread

all over India. It started its journey in India in 1912 by entering into the dairy

business.

Nestlé India, one the biggest players in FMCG segment, has a presence in milk &

nutrition, beverages, prepared dishes & cooking aids & chocolate & confectionery

segments. Nestle has created brands like Nestlé Milkmaid, Nestlé Everyday, Maggi

Noodles, Maggi Soups, Polo, Kit Kat, Nescafe & many more.

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As per the market-wise position Nestlé India stands first in instant noodles &

ketchups, second in healthy soups, No.1 in instant coffee, & No.2 in overall chocolate

category.

Nestle India continuously focuses on understanding changing lifestyles in India. This

helps it to foresee needs in hts product offerings. The company innovates new product

& renovates existing one providing high quality, safe food products at affordable

prices.

Segments

Milk Products & Nutrition

Beverages

Prepared dishes & cooking Aids

Chocolates & Confectionery

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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) CY08 CY09 CY10E CY11E

Description 12m 12m 12m 12m

Net Sales 43351.10 51499.90 62887.62 71063.01

Other Income 230.20 171.80 200.90 225.01

Total Income 43581.30 51671.70 63088.52 71288.02

Expenditure -34802.90 -41219.80 -50306.20 -56850.41

Operating Profit 8778.40 10451.90 12782.32 14437.61

Interest -126.60 -169.50 -66.77 -72.11

Gross profit 8651.80 10282.40 12715.55 14365.50

Deprecation -923.60 -1112.70 -1237.63 -1386.15

Profit Before Tax 7728.20 9169.70 11477.92 12979.35

Tax -2387.40 -2619.70 -3280.05 -3764.01

Profit After Tax 5340.80 6550.00 8197.87 9215.34

Equity capital 964.20 964.20 964.20 964.20

Reserves 3769.40 4848.50 13046.37 22261.71

Face value (Rs.) 10.00 10.00 10.00 10.00

EPS 55.39 67.93 85.02 95.57

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10E

Description 3m 3m 3m 3m

Net sales 14854.20 14713.00 16414.00 16906.42

Other income 34.90 55.30 54.00 56.70

Total Income 14889.10 14768.30 16468.00 16963.12

Expenditure -11709.70 -11794.10 -13108.20 -13694.20

Operating profit 3179.40 2974.20 3359.80 3268.92

Interest -5.50 -3.70 -28.50 -29.07

Gross profit 3173.90 2970.50 3331.30 3239.85

Deprecation -309.90 -303.90 -305.80 -318.03

Profit Before Tax 2864.00 2666.60 3025.50 2921.82

Tax -845.40 -718.20 -839.90 -876.55

Profit After Tax 2018.60 1948.40 2185.60 2045.27

Equity capital 964.20 964.20 964.20 964.20

Face value (Rs.) 10.00 10.00 10.00 10.00

EPS 20.94 20.21 22.67 21.21

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Key Ratios

Particulars CY08 CY09 CY10E CY11E

No. of Shares(In Million) 96.42 96.42 96.42 96.42

EBITDA Margin (%) 20.25% 20.29% 20.33% 20.32%

PBT Margin (%) 17.83% 17.81% 18.25% 18.26%

PAT Margin (%) 12.32% 12.72% 13.04% 12.97%

P/E Ratio (x) 65.71 53.58 42.81 38.09

ROE (%) 112.83% 112.68% 58.51% 39.68%

ROCE (%) 204.96% 198.95% 100.07% 68.13%

EV/EBITDA (x) 39.98 33.58 27.46 24.31

Book Value (Rs.) 49.09 60.29 145.31 240.88

P/BV 74.14 60.38 25.05 15.11

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Charts:

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Outlook and Conclusion

At the current market price of Rs.3640.00, the stock is trading at 42.91 x

CY10E and 38.09 x CY11E respectively.

Price to Book Value of the stock is expected to be at 25.05 x and 15.11 x

respectively for CY10E and CY11E.

Earning per share (EPS) of the company for the earnings for CY10E and CY11E

is seen at Rs.85.02 and Rs.95.57 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 18% and

20% over 2008 to 2011E respectively.

On the basis of EV/EBITDA, the stock trades at 27.46 x for CY10E and 24.31 x

for CY11E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.4113.00 for Medium to Long term investment.

Industry Overview

FMCG Sector

Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer

packaged goods. Items in this category include all consumables (other than

groceries/pulses) people buy at regular intervals. The most common in the list are

toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,

packaged foodstuff, household accessories and extends to certain electronic goods.

These items are meant for daily of frequent consumption and have a high return.

A major portion of the monthly budget of each household is reserved for FMCG

products. The volume of money circulated in the economy against FMCG products

is very high, as the number of products the consumer use is very high. Competition

in the FMCG sector is very high resulting in high pressure on margins

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FMCG companies maintain intense distribution network. Companies spend a large

portion of their budget on maintaining distribution networks. New entrants who

wish to bring their products in the national level need to invest huge sums of money

on promoting brands. Manufacturing can be outsourced. A recent phenomenon in

the sector was entry of multinationals and cheaper imports. Also the market is more

pressurized with presence of local players in rural areas and state brands

Scope of the Sector

The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest

sector in the economy. A well-established distribution network, intense competition

between the organized and unorganized segments characterizes the sector. FMCG

Sector is expected to grow by over 60% by 2010. That will translate into an annual

growth of 10% over a 5-year period. It has been estimated that FMCG sector will

rise from around Rs 56,500 cr. in 2005 to Rs 92,100 cr. in 2010. Hair care,

household care, male grooming, female hygiene, and the chocolates and

confectionery categories are estimated to be the fastest growing segments, says an

HSBC report. Though the sector witnessed a slower growth in 2002-2004, it has

been able to make a fine recovery since then.

For example, Hindustan Levers Limited (HUL) has shown a healthy growth in the

last quarter. An estimated double-digit growth over the next few years shows that

the good times are likely to continue

Growth Prospects

With the presence of 12.2% of the world population in the villages of India, the

Indian rural FMCG market is something no one can overlook. Increased focus on

farm sector will boost rural incomes, hence providing better growth prospects to the

FMCG companies. Better infrastructure facilities will improve their supply chain.

FMCG sector is also likely to benefit from growing demand in the market. Because

of the low per capita consumption for almost all the products in the country, FMCG

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companies have immense possibilities for growth. And if the companies are able to

change the mindset of the consumers, i.e. if they are able to take the consumers to

branded products and offer new generation products, they would be able to

generate higher growth in the near future. It is expected that the rural income will

rise in 2007, boosting purchasing power in the countryside.

However, the demand in urban areas would be the key growth driver over the long

term. Also, increase in the urban population, along with increase in income levels

and the availability of new categories, would help the urban areas maintain their

position in terms of consumption. At present, urban India accounts for 66% of total

FMCG consumption, with rural India accounting for the remaining 34%. However,

rural India accounts for more than 40% consumption in major FMCG categories

such as personal care, fabric care, and hot beverages. In urban areas, home and

personal care category, including skin care, household care and feminine hygiene,

will keep growing at relatively attractive rates. Within the foods segment, it is

estimated that processed foods, bakery, and dairy are long-term growth categories

in both rural and urban areas

Indian Competitiveness and Comparison with the World Markets

The following factors make India a competitive player in FMCG sector:

• Availability of raw materials

Because of the diverse agro-climatic conditions in India, there is a large raw

material base suitable for food processing industries. India is the largest producer of

livestock, milk, sugarcane, coconut, spices and cashew and is the second largest

producer of rice, wheat and fruits &vegetables. India also produces caustic soda

and soda ash, which are required for the production of soaps and detergents. The

availability of these raw materials gives India the location advantage.

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________________ ____ _________________________ 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.

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