nestle india

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Rpt. 17518977 NESTLE INDIA LTD 2 - 14

27-Apr-2011 NOMURA INTERNATIONAL (HONG KONG) LTD.

- JAIN, MANISH, ET AL

Rpt. 17573361 NESTLE INDIA LTD 15 - 38

18-Apr-2011 ICD RESEARCH - COMPANY SWOT

- RESEARCH DEPARTMENT

Key company data: See page 2 for company data, and detailed price/index chart. Rating: See report end for details of Nomura’s rating system.

Nestle India NEST.BO NEST IN

FOOD & BEVERAGE

EQUITY RESEARCH

Strong start to a likely steady year Attractive long-term play; however, valuations cap the near-term upside

April 27, 2011

Rating Remains Neutral

Target price Increased from 3525

INR 3800

Closing price April 27, 2011

INR 3945

Potential downside -3.7%

Action: Valuations reflect fair value; reaffirm NEUTRAL The company has demonstrated a strong start to CY11; however, the stock appears fairly valued, in our view. We continue to believe that Nestle remains one of the best plays on the emerging food opportunity in India from a long-term perspective.

Catalyst: Rising input prices offset by strong price/mix benefit Rising input prices are near-term negative catalysts for Nestle. A&P spend could rise in the near term as competition remains strong. However, the company should reap benefits from a strong price/mix as demonstrated by its 1Q CY11 results, which should help mitigate the impact on margins, in our view.

Steady earnings momentum likely We expect the company to deliver 22% revenue growth and a steady 50bp margin improvement, leading to 22.5% EPS growth for the year.

Target price higher on account of roll forward The net impact of the above changes is largely neutral, with our earnings estimates cut by 1-2% over CY11F and CY12F. Our price target moves higher to Rs3,800 on account of the roll-forward by one quarter.

Valuation: Look for a better entry point We view Nestle as a solid long-term story, but current valuations at 30.3x CY12F imply we would look for a better entry point into the stock. Longer term, we continue to prefer food names vs HPC in the consumer space.

31 Dec FY10 FY11F FY12F FY13FCurrency (INR) Actual Old New Old New New

Revenue (mn) 62,547 72,309 76,380 85,937 93,521 112,199

Reported net profit (mn) 8,187 10,409 10,256 12,587 12,563 15,306

Normalised net profit (mn) 8,371 10,409 10,256 12,587 12,563 15,306

Normalised EPS 86.8 108.0 106.4 130.5 130.3 158.8

Norm. EPS growth (%) 20.0 26.3 22.5 20.9 22.5 21.8

Norm. P/E (x) 45.4 N/A 37.1 N/A 30.3 24.9

EV/EBITDA 29.8 N/A 23.8 N/A 19.2 15.8

Price/book (x) 44.5 N/A 28.5 N/A 19.5 13.9

Dividend yield (%) 1.4 N/A 1.4 N/A 1.7 2.0

ROE (%) 114.0 116.9 93.7 109.0 76.4 65.2

Net debt/equity (%) net cash net cash net cash net cash net cash net cash

Anchor themes

In the long term, we prefer food names in the consumer sector vs. HPC names. We see the food subsector growing faster led by lower penetration levels and increased consumption.

Nomura vs consensus

We are largely in line with consensus on CY12 earnings but are ahead of consensus on CY13. We believe Nestle will deliver >20% earnings growth each year over the next three years.

Research analysts

India Consumer Related

Manish Jain - NFASL [email protected] +91 22 4037 4186

Anup Sudhendranath - NFASL [email protected] +91 22 4037 5406

See Appendix A-1 for analyst certification and important disclosures. Analysts employed by non US affiliates are not registered or qualified as research analysts with FINRA in the US.

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Nomura | ASIA Nestle India April 27, 2011

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Key data on Nestle India Income statement (INRmn) Year-end 31 Dec FY09 FY10 FY11F FY12F FY13FRevenue 51,294 62,547 76,380 93,521 112,199Cost of goods sold -26,982 -33,953 -41,588 -51,121 -61,328Gross profit 24,312 28,594 34,792 42,400 50,871SG&A -10,550 -12,851 -15,356 -18,756 -22,540Employee share expense -4,324 -4,334 -5,106 -6,036 -7,114Operating profit 9,438 11,409 14,330 17,607 21,216

EBITDA 10,550 12,686 15,908 19,703 23,827Depreciation -1,113 -1,278 -1,578 -2,096 -2,610Amortisation

EBIT 9,438 11,409 14,330 17,607 21,216Net interest expense -14 -11 -30 0 0Associates & JCEs

Other income 172 238 351 340 650Earnings before tax 9,596 11,636 14,651 17,947 21,866Income tax -2,620 -3,264 -4,395 -5,384 -6,560Net profit after tax 6,976 8,371 10,256 12,563 15,306Minority interests

Other items

Preferred dividends

Normalised NPAT 6,976 8,371 10,256 12,563 15,306Extraordinary items -426 -185 0 0 0Reported NPAT 6,549 8,187 10,256 12,563 15,306Dividends -5,471 -5,448 -5,462 -6,363 -7,424Transfer to reserves 1,079 2,738 4,794 6,199 7,882

Valuation and ratio analysis

FD normalised P/E (x) 54.5 45.4 37.1 30.3 24.9FD normalised P/E at price target (x) 52.5 43.8 35.7 29.2 23.9Reported P/E (x) 58.1 46.5 37.1 30.3 24.9Dividend yield (%) 1.4 1.4 1.4 1.7 2.0Price/cashflow (x) 42.8 35.4 33.1 25.8 23.0Price/book (x) 65.4 44.5 28.5 19.5 13.9EV/EBITDA (x) 35.9 29.8 23.8 19.2 15.8EV/EBIT (x) 40.1 33.1 26.4 21.5 17.7Gross margin (%) 47.4 45.7 45.6 45.3 45.3EBITDA margin (%) 20.6 20.3 20.8 21.1 21.2EBIT margin (%) 18.4 18.2 18.8 18.8 18.9Net margin (%) 12.8 13.1 13.4 13.4 13.6Effective tax rate (%) 27.3 28.1 30.0 30.0 30.0Dividend payout (%) 83.5 66.5 53.3 50.7 48.5Capex to sales (%) 4.0 7.7 9.3 8.1 6.3Capex to depreciation (x) 1.9 3.8 4.5 3.6 2.7ROE (%) 124.2 114.0 93.7 76.4 65.2ROA (pretax %) 55.8 54.5 53.7 51.5 51.2

Growth (%)

Revenue 18.6 21.9 22.1 22.4 20.0EBITDA 19.9 20.2 25.4 23.9 20.9EBIT 19.9 20.9 25.6 22.9 20.5Normalised EPS 22.9 20.0 22.5 22.5 21.8Normalised FDEPS 22.9 20.0 22.5 22.5 21.8

Per share

Reported EPS (INR) 67.93 84.91 106.37 130.30 158.75Norm EPS (INR) 72.35 86.83 106.37 130.30 158.75Fully diluted norm EPS (INR) 72.35 86.83 106.37 130.30 158.75Book value per share (INR) 60.29 88.72 138.44 202.74 284.48DPS (INR) 56.74 56.51 56.65 66.00 77.00Source: Nomura estimates

Notes

Strong revenue growth helped by volumes, pricing and mix improvement

Price and price relative chart (one year)

(%) 1M 3M 12MAbsolute (INR) 6.9 11.2 41.2Absolute (USD) 7.5 13.9 41.2Relative to index 3.9 7.5 35.1Market cap (USDmn) 8,558.7Estimated free float (%) 38.0 52-week range (INR) 4224/25703-mth avg daily turnover (USDmn) 3.16 Major shareholders (%) Nestle 62.8LIC of India 2.7

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Cashflow (INRmn) Year-end 31 Dec FY09 FY10 FY11F FY12F FY13FEBITDA 10,550 12,686 15,908 19,703 23,827Change in working capital 1,417 1,575 -345 105 -1,405Other operating cashflow -3,073 -3,523 -4,074 -5,044 -5,910Cashflow from operations 8,894 10,739 11,489 14,764 16,512Capital expenditure -2,064 -4,832 -7,086 -7,600 -7,075Free cashflow 6,830 5,907 4,403 7,164 9,437Reduction in investments -1,684 526 0 0 0Net acquisitions

Reduction in other LT assets 0 0 0 0 0Addition in other LT liabilities -49 13 0 0 -88Adjustments

Cashflow after investing acts 5,098 6,445 4,403 7,164 9,348Cash dividends -5,471 -5,448 -5,462 -6,363 -7,424Equity issue 0 0 0 0

Debt issue -8 0 750 -750

Convertible debt issue 0 0 0 0

Others

Cashflow from financial acts -5,479 -5,448 -4,712 -7,113 -7,424Net cashflow -381 997 -309 50 1,924Beginning cash 1,937 1,556 2,553 2,244 2,294Ending cash 1,556 2,553 2,244 2,295 4,219Ending net debt -1,556 -2,553 -1,494 -2,294 -4,219Source: Nomura estimates

Balance sheet (INRmn) As at 31 Dec FY09 FY10 FY11F FY12F FY13FCash & equivalents 1,556 2,553 2,244 2,294 4,219Marketable securities 0 0 0 0 0Accounts receivable 642 633 773 946 1,135Inventories 4,987 5,760 7,041 8,621 10,343Other current assets 1,380 1,514 1,920 2,351 2,821Total current assets 8,566 10,460 11,978 14,213 18,518LT investments 2,033 1,507 1,507 1,507 1,507Fixed assets 9,758 13,616 19,125 24,629 29,093Goodwill

Other intangible assets

Other LT assets 0 0 0 0 0Total assets 20,356 25,583 32,609 40,349 49,118Short-term debt

Accounts payable 5,876 7,617 9,387 11,495 13,791Other current liabilities 8,348 9,079 8,791 8,974 7,653Total current liabilities 14,224 16,696 18,178 20,469 21,444Long-term debt 0 0 750 0 0Convertible debt

Other LT liabilities 320 333 333 333 245Total liabilities 14,544 17,029 19,261 20,801 21,688Minority interest 0 0 0 0 0Preferred stock 0 0 0 0 0Common stock 964 964 964 964 964Retained earnings 4,848 7,590 12,384 18,583 26,466Proposed dividends

Other equity and reserves

Total shareholders' equity 5,813 8,554 13,348 19,548 27,430Total equity & liabilities 20,356 25,583 32,609 40,349 49,118

Liquidity (x)

Current ratio 0.60 0.63 0.66 0.69 0.86Interest cover 674.8 1,061.8 477.7 na na

Leverage

Net debt/EBITDA (x) net cash net cash net cash net cash net cashNet debt/equity (%) net cash net cash net cash net cash net cash

Activity (days)

Days receivable 3.9 3.7 3.4 3.4 3.4Days inventory 63.1 57.8 56.2 56.1 56.4Days payable 74.0 72.5 74.6 74.8 75.2Cash cycle -7.0 -11.0 -15.1 -15.3 -15.4Source: Nomura estimates

Notes

Strong free cash flow generation despite aggressive expansion plans

Notes

Increased capital expenditure takes a toll on cash balances

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Minor tweaks to our earnings estimates

We have made minor adjustments to our earnings estimates, down 1.5% in CY11F and largely flat in CY12F. While changes at the PAT level are minor, the composition of earnings undergoes a significant change on account of: 1) relatively muted margin expectations; and 2) higher capex to fund expansion plans.

Apart from the above-mentioned changes, we have marginally increased our estimated tax rate and have incorporated the audited CY10 numbers into our estimates.

Some of the details are as follows:

• Incorporating audited CY10 numbers into our estimates: We have incorporated the audited and published CY10 numbers into our model. Audited results for CY10 were ~2% ahead of our earlier published estimates. This was largely on account of exceptional and one-off items.

• Increased capex numbers: We are now building in a significantly higher capex going into the next couple of years, based largely on the company’s announced plans for brownfield capacity expansions. Consequently, our capex assumptions go up from Rs1.9bn both for CY11F and CY12F previously, to Rs 7bn and Rs7.6bn, respectively. Furthermore, higher depreciation also negatively impacts CY11F earnings.

• Margin expectations: We have also incorporated the recently announced 1Q CY11 numbers and guidance into our assumptions; hence, now have relatively muted margin expectations. While we were earlier building in a significant 130bp margin expansion in CY11F, followed by a 20bp decline in CY12F, we now see margin progression as being more muted by 50bps in CY11F.

Introducing CY13F earnings We are also introducing CY13F earnings and are building in steady 20% revenue growth, driven largely by the continued strong performance of the domestic business. We expect earnings to register 22% growth in CY13 on the back of flattish operating margins. Our CY13F EPS estimate is Rs158.8.

Increased capex implies a higher non-cash expense, but positive in the long term Nestle has begun executing the capex plans it highlighted at the end of last year. Execution is now in full swing at its plants across the country, which in our view will ensure that the company has enough capacity to meet demand for around the next 5-7 years. Of the US$450mn that the company plans to spend, we believe spending will be largely evenly phased out, with 30% coming in CY11F, 40% in CY12F and 30% in CY13F.

The company’s capex plans are aimed at increasing the capacity of its existing plants spread across its six locations. The company also plans to set up new greenfield capacity, details for which have not yet been disclosed. Once its plans are in place, we expect further capex increases over CY12 and CY13, to ensure that the company has enough capacity to enable it to meet demand in the medium term.

While we do believe that these investments are a positive signal from a long-term demand perspective, it has a marginal negative impact on earnings on account of higher depreciation.

Expansion of both greenfield and brownfield capacities Nestle has not disclosed the numbers on how much investment will go into greenfield projects, but noted that there will be significant addition. Capacity addition will be largely undertaken for products in segments such as prepared dishes, milk products and chocolates, where the company sees strong growth potential over the next few years. It will also invest to expand its existing plants. The total planned investments across its existing capacities will be ~Rs 20bn, according to the company.

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Some of the planned investments across its existing plants are listed below:

• Ponda (Goa) – Rs5bn

• Nanjangud (Karnataka) – Rs4bn

• Samalkha (Haryana) – Rs6.5bn

• Bicholim (Goa) – Rs1.5bn

1Q CY11 results – A strong start to the year The Q1 results showed a strong start to the year, with sales growth marginally ahead of our expectations, but the key surprise was gross margins. The company benefitted from a strong price / mix, which led to a 100bp y-y improvement in gross margins, in our view. However, this was despite an increase in commodity costs which was offset during the quarter by the benefit from price/mix. At the PAT line, results were 11% ahead of our estimates, which we have now incorporated into our numbers for CY11F.

As we had highlighted before (Young and Hungry, February 21, 2011), food companies have better pricing power vs hygiene and personal care (HPC) companies, which gives them an advantage in a rising input cost scenario. This was demonstrated by Nestle’s 1Q CY11 results, which were helped by much stronger pricing and mix benefits than we had expected.

Key highlights of the 1Q CY11 results – Net sales rose +22.3% to Rs18.1bn vs. our expectation of Rs17.7bn. This can be

attributed to strong volume growth as well as price/mix benefit. Export sales rose 10.2% for the quarter.

– Gross margin improved by 100bps y-y but was down 120bps q-q. Gross margin improvement can be attributed to positive channel and product mix. However, the company does indicate that pressure from commodity costs has offset the improvement in gross margin, and hence, it has a cautious outlook on input cost pressures for the rest of the year.

– EBITDA came in at Rs3.8bn.This was also helped by lower employee costs vs. our expectations. EBITDA margin for the quarter was 21.3%, an 80bp improvement y-y.

– Reported PAT was Rs2.5bn, with EPS coming in at Rs26.5 for the quarter.

Fig. 1: Nestle India - 1Q CY11 results highlights

Source: Company data, Nomura research

Our expectations for quarterly performance in CY11F We expect sales growth to be strong through the rest of the year as well as in line with the strong 1Q, helped by solid volume growth, strong pricing actions, as well as mix improvement. We see revenue growth at 22-23% for the rest of the year (2Q-4Q) on a

(Rs mn) Mar-11 Mar-10 YoY % Chg Dec-10 QoQ % ChgNet Sales 18,100 14,798 22.3 16,710 8.3EBIDTA 3,853 3,040 26.7 3,298 16.9Other income 128 91 39.6 139 (8.3)PBIDT 3,981 3,132 27.1 3,437 15.8Depreciation 327 310 5.6 358 (8.6)Interest 1 6 1PBT 3,653 2,816 29.7 3,078 18.7Tax 1,027 845 21.5 861 19.3Adjusted PAT 2,626 1,971 33.3 2,217 18.5Extra ordinary income/ (exp.) (69) 48 (183)Reported PAT 2,557 2,019 26.7 2,034 25.7No. of shares (mn) 96 96 96EBIDTA margins (%) 21.3 20.5 19.7

Quarter Ended

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y-y basis, largely helped by the company’s strong pricing action taken across its portfolio. We also see benefits from mix improvement seen in 1Q continuing through the rest of the year.

However, input cost pressure remains high in the near term, which should hold back significant margin improvement over the next couple of quarters, in our view. We foresee flat margins y-y in 2Q CY11F and expect margins to improve by 50bp in 2H CY11F as input cost pressures begin to ease as the company expects costs to moderate in 2H CY11.

In all, this implies that for the full-year CY11F, margins will likely improve by 50bps, which is lower than what was visible in 1Q. With input prices easing off significantly, we see margin risk on the upside from these levels.

Fig. 2: Quarterly expectations for Nestle India – CY11

Source: Company data, Nomura estimates

Input cost pressures offset by strong pricing dynamics The company expects input costs will continue to be volatile in the short term, and hence, we think it is difficult to have clear visibility on how input prices will impact gross margins in the near term. However, the company does have the advantage of managing costs by way of supply-chain efficiencies and various sourcing benefits it gets from having preferred supply partners.

In addition, we and the Street were surprised by the strong price/mix benefit seen by the company in 1Q CY11. The company’s pricing actions have not been limited to the milk portfolio only, but have been extended to chocolates and dairy products as well. The company has, in the past, spoken about taking price increases in its prepared dishes portfolio as well, which should further help protect its gross margins, in our view.

Fig. 3: Nestle India – raw material price index


Q1 CY11A Q2 CY11F Q3 CY11F Q4 CY11F

Sales 18,100 17,954 20,098 20,530 Grow th (%) 22.3% 22.4% 22.7% 22.9%EBITDA 3,853 3,620 4,150 4,087 EBITDA margins 21.3% 20.2% 20.6% 19.9%

PAT 2,626 2,352 2,709 2,651 Grow th (%) 33.3% 16.7% 25.0% 19.6%

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Fig. 4: Fresh milk price index


Fig. 5: MSK price index


Fig. 6: Green coffee price index


Fig. 7: Sugar price index


Pricing power gives food companies relative protection vs. HPC peers As we have highlighted in the past (Young and Hungry, February 21, 2011), food companies are relatively better placed vis-à-vis HPC companies, as far as price increases are concerned. Consumers are more accepting of price increases, with food inflation being in double digits over the past three years (source: Nomura economics team). What has been a positive as far as Nestle is concerned is that volume growth has continued to be strong despite price increases.

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Fig. 8: Yearly volume and price growth Volume growth not impacted by pricing actions


Margin expectations pared down for CY11F and CY12F We were earlier building in a significant 80bp margin improvement in CY11F and a more moderate 20bp improvement in CY12F. However, with input cost increases in 1Q CY11 being significantly ahead of our estimates, we now see limited scope for margin improvement. We are now building a more moderate increase in margins over the next couple of years. We now expect margins to improve by 50bps in CY11F and 30bps in CY12F.

While margins were up 75bps in 1Q CY11, we would wait for more sustainable trends into the next quarter before re-looking at our margin assumptions. Our expectations for the rest of the year are a more steady 50bp increase in 2H CY11, with 2Q being the weakest quarter in terms of margin performance.

Raising price target to Rs3,800 owing to roll forward We are raising our price target by nearly 8% to Rs3,800 (from Rs3,525 ) on account of a roll-forward by one quarter. There is a minimal 2% cut to our CY11F estimates and a 1% cut to our CY12F estimates, but our target multiple remains the same at 27x CY12F. This leads to a nearly 8% increase in our price target. Our valuation methodology is unchanged.

Reaffirm NEUTRAL and look for a better entry point We continue to believe Nestle India is a great long-term story in the food space in India; however, our concern in the near term is around valuations, which are at 29.4x CY12F EPS of Rs130.3. We believe the stock is expensive at current levels, and would look for a better entry point into what we consider one of the best long-term stories in the Indian consumer space.

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Fig. 9: Consumer and retail valuations

Note: Prices as of 27 April, 2010 * Valuations are CY11F and CY12F Source: Bloomberg, Nomura research

Company Ticker Rating Price Rs. FY12E PEGFY11E FY12E

Food & BeveragesNestle * NEST IN Neutral 3945 37.1x 30.3x 1.3xJubilant Foodworks JUBI IN Buy 696 65.0x 47.9x 0.7xGSK Consumer * SKB IN Buy 2355 33.0x 27.4x 0.9xUnited Spirits UNSP IN Buy 1020 23.9x 16.7x 0.3x

35.8x 28.4xHPCHindustan Unilever HUVR IN Reduce 284 29.1x 26.0x 5.2xGodrej Consumer GCPL IN Neutral 380 25.7x 20.0x 0.6xDabur DABUR IN Buy 100 28.4x 22.3x 1.0xMarico MRCO IN Reduce 138 29.8x 25.2x 1.4xColgate Palmolive CLGT IN Reduce 885 26.8x 24.4x 3.6x

28.4x 24.5xTobaccoITC ITC IN Buy 194 30.3x 26.0x 1.5x

RetailPantaloon Retail PF IN Buy 275 16.4x 12.0x 0.3xTitan Industries TTAN IN Reduce 4124 54.6x 43.4x 1.5x

45.3x 35.8xPaintsAsian Paints APNT IN Buy 2668 28.2x 24.0x 1.3x

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Appendix A-1

Analyst Certification

I, Manish Jain, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures Mentioned companies Issuer name Ticker Price Price date Stock rating Sector rating Disclosures Nestle India NEST IN 3945 INR 27-Apr-2011 Neutral Not rated

Previous Rating Issuer name Previous Rating Date of change Nestle India Reduce 21-Feb-2011

Nestle India (NEST IN) 3945 (27-Apr-2011)Rating and target price chart (three year history)

Neutral (Sector rating: Not rated)

Date Rating Target price Closing price 21-Feb-2011 Neutral 3480.00 10-Nov-2010 3525.00 3848.60 10-Nov-2010 Reduce 3848.60 18-Aug-2010 3230.00 2751.50 18-Aug-2010 Buy 2751.50 24-Feb-2010 2366.00 2574.95 24-Feb-2010 Reduce 2574.95 24-Sep-2009 2177.00 2227.80 12-Nov-2008 1598.00 1350.20 12-Nov-2008 Neutral 1350.20

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our INR3,800 price target is based on 27x our CY12F EPS estimate of Rs130.3. Risks that may impede the achievement of the target price Negative risks arise from further increase in input prices and higher A&P spends. Positive risks come from better price/mix improvement vs. our expectations.

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Important Disclosures Online availability of research and additional conflict-of-interest disclosures Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA.COM, REUTERS, BLOOMBERG and THOMSON ONE ANALYTICS. For clients in Europe, Japan and elsewhere in Asia it is available on NOMURA.COM, REUTERS and BLOOMBERG. Important disclosures may be accessed through the left hand side of the Nomura Disclosure web page http://www.nomura.com/research or requested from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email [email protected] for technical assistance. The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by Investment Banking activities. 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Distribution of ratings (Global) The distribution of all ratings published by Nomura Global Equity Research is as follows: 49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 37% of companies with this rating are investment banking clients of the Nomura Group*. 40% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. 11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 16% of companies with this rating are investment banking clients of the Nomura Group*. As at 31 March 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report. Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008 The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more.

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A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008) STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector - Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. Target Price A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

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Nestle India Limited

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Nestle India Limited - SWOT Profile Page 1

Nestle India Limited: SWOT Analysis &

Company Profile

Reference code: CG0293CP

Published: Apr 2011

ICD Research

John Carpenter House

7 Carmelite Street

London EC4Y 0BS

United Kingdom

Tel: +44 (0) 20 7336 5200

Fax: +44 (0) 20 7336 5201

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Nestle India Limited - Company Overview

Nestle India Limited (Nestle India) is a subsidiary of Nestlé S.A. a global food products company based in Switzerland. The company principally engages in the manufacturing, marketing, exporting and sales of food and beverage products which include milk products and nutrition products, beverages, prepared dishes and cooking aids, and chocolates and confectionery. It markets its products under international brand names such as Nescafe, Milo, Nestea Maggi, Milky bar, Kit Kat, Bar-One, Milkmaid, Nestle Milk, Nestle Slim Milk and Nestle Fresh. The company has seven manufacturing facilities and four branch offices and operates all over India. It also exports its products to Russia, Australia and Africa. The company is headquartered in Gurgaon, Haryana, India.

Financial Performance

The company reported revenue of INR62,547.5 million during the fiscal year 2010 (FY2010). The company's revenue grew at a CAGR of 22.08% during 2006–10 with an annual growth of 21.9% over FY2009. During FY2010, operating margin of the company was 18.3% as compared to operating margin of 17.9% in FY2009. During FY2010, the company recorded net margin of 13.1% as compared to net margin of 12.8% in FY2009.

Nestle India Limited - Key Facts

Nestle India Limited, Key Facts

Corporate Address:

Nestle House, Gurgaon, , 122

002, India

Ticker Symbol, Stock Exchange

500790 (Bombay Stock Exchange)

Telephone + 91 124 6389300 No. of Employees 4,983

Fax + 91 124 6389411 Financial Year End December

URL www.nestle.in Revenue (in INR Million) 62,974.00

Industry Consumer Packaged Goods Revenue (in USD Million) 1,370.79

Locations Australia, Bangladesh, Fiji, India, Sri Lanka, Russian Federation, Kenya, South Africa

Source: Annual Report, Company Website, Primary and Secondary Research

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Nestle India Limited - Business Description

Nestle India Limited (Nestle India) engages in the manufacture, marketing, export and sale of food and beverage products. The company is a subsidiary of Nestle S.A. It operates all its business activities under one principal business segment, Food. Nestle India categorizes its food business into the four food groups, Milk Products and Nutrition, Prepared Dishes and Cooking Aids, Beverages, and Chocolates and Confectionery. The Milk Products and Nutrition group of the company manufactures and markets infant milk substitutes, feeding bottles, infant foods, dairy whitener, processed milk, low fat milk, ghee, yoghurt, yoghurt drinks and skimmed and sweetened milk solids. The company markets these products under various brands such as Nestlé Everyday Dairy Whitener, Nestlé Everyday ghee, Nestlé Milk, Nestlé Slim milk, Nestlé Fresh 'N' Natural Dahi (Yoghurt), Nesvita Fruit Yoghurt, Cerevita, Milkmaid and Nestlé Nido. In addition, the company exports its dairy whitener, sweetened milk solid and ghee products. Under the Prepared Dishes and Cooking Aids group, the company manufactures and markets instant noodles, ready-to-cook noodles, snacks, whole wheat flour and vegetable noodles, Indian sauces and ketchups, pastes of traditional Indian spices and authentic Indian recipes, curry pastes, and dried soups. Nestle India markets these products under its key brand Maggi. Maggi was ranked as the most valuable food brand in a survey conducted by ICMR in 2009. The company also exports products such as instant noodles, Chinese noodles, sauces, curry pastes and healthy soups. The Beverages group of the company manufactures and markets instant coffee powder and health drinks. It markets all its instant coffee powder products under the brand name Nescafe which further comprises Classic and Sunrise brand names. For exports, the company manufactures instant coffee powder under the brands Nescafe and Sunrise; hot and cold water soluble green and black tea powders sold in bulk quantities; tea bags under the brand Nestea; and energy drinks under the brand Milo. In addition, the company manufactures pre-mixes for use in vending machines in this category. These mixes include coffee frappe, plain and cardamom flavored tea premixes, hot chocolate, iced tea and almond milk vending mixes. The company’s Chocolate and Confectionery Group manufactures and markets wafers with chocolate layer, milk treat, nougat and caramel, caramel eclairs and mint rolls. It markets these products under the brands Kit Kat, Munch, Bar One and Polo. The company also exports all the product lines in this group. Geographically, the company exports its products to Sri Lanka, Bangladesh, Papua New Guinea, Fiji, Kenya, Russia, Australia and Africa.

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Nestle India Limited - Major Products and Services

Nestle India Limited engages in the manufacture, marketing, export and sales of food and beverage products. The company’s key products include the following:

Nestle India Limited, Major Products and Services

Products:

Milk substitutes

Children nutrition milk

Infant foods

Dairy whitener

Processed milk

Low fat milk

Ghee

Yoghurt

Yoghurt drinks

Skimmed and sweetened milk solids

Instant noodles

Ready to cook noodles

Fortified taste enhancers

Ready-to-use gravy base

Coconut milk powder

Pasta

Snacks

Whole wheat flour and vegetable noodles

Indian sauces and ketchups

Pastes of traditional Indian spices and authentic Indian recipes

Curry pastes

Dried soups

Instant coffee powder and health drinks

Tea

Chocolates

Wafers with chocolate layer

Milk treat

Nougat and caramel

Caramel eclairs

Mint rolls

Brands:

NESTLÉ EVERYDAY Dairy Whitener

EVERYDAY Slim

EVERYDAY pure Ghee

NESVITA PRO-HEART

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NESCAFÉ CLASSIC

NESTEA

NESTEA Iced Tea

MAGGI 2-MINUTE Noodles

MAGGI Sauces

MAGGI RICE NOODLE MANIA

MAGGI Healthy Soup- Sanjeevni

NESTLÉ KITKAT

KIT KAT CHUNKY

KIT KAT Mini

MUNCH

NESTLÉ Milk Chocolate

NESTLÉ BAR-ONE

NESTLÉ Milk Chocolate

MUNCH POP CHOC

POLO XTRA STRONG


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Nestle India Limited - History

Nestle India Limited, History

Year Event type Description

2010

Acquisitions/Mergers/Takeovers

The company acquired Healthcare Nutrition Business from Speciality Foods India Private Limited, another Indian subsidiary of Nestlé S.A.

2010

Others

Nestle India added a portfolio of nutritional product brands such as Resource, Optifast, and Spert.

2010

Plans/Strategy

The company has plans to open two new plants by 2011-12, with one of the proposed plants located in Himachal Pradesh.

2009

Corporate Awards

The company was ranked amongst The Most Consistent Top 10 Wealth Creators in Motilal Oswal’s 14 Annual Wealth Creation Study.

2009

Corporate Awards

The company received various awards which included Star Multinational from Business Standard, and Business Leadership Award from NDTV PROFIT.

2008

New Product Approvals

Nestle launched two new variants in its popular Kit Kat brand namely, Kit Kat Chunky and Kit Kat Mini.

2008

Corporate Awards

The company received a prestigious Export Award for 2008 from the Ministry of Commerce and Industry in recognition of outstanding export performance in the export of Instant Tea during the year 2006-07.

2007

Corporate Changes/Expansions

The plant in Uttaranchal started its initial phase of production.

2005


The company started its seventh factory in Uttaranchal, India.

2003

Business / Operations Closure

The company withdrew from the bottled water business.

2002

Contracts/Agreements

McDonald's India entered into a strategic agreement with Nestle India to jointly offer beverages such as ice-tea and cold-coffee as well as desserts at their restaurants.

2001

New Products/Services

Nestle, the parent company started the domestic bottled water business, and marketed drinking water under the brand name 'Pure Life'.

2001


Nestle India introduced a second premium mineral water brand, San Pellegrino. It also introduced its ultra heat-treated liquid milk, Nestle Pure Milk, in Bangalore, Chennai, Hyderabad and Kochi, India.

1995


The company started Nanjangud factory to manufacture chocolate and energy food drink products.

1995


The company constructed a new factory at Bicholim, Goa.

1994


The company introduced a variety of new products which included Cerelac soya, Milk Maid, dessert mixes, Contodina snack dressing and the chocolate items, milky base marbles and bar one peanut.

1993


The Samalkha factory started operating commissioned and manufactured cereal based products, culinary products, milk products and water.

1990


The company started chocolate business by introducing Nestle chocolates in the markets.

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1989


The company was acquired by Nestle and its name was changed from Food Specialities to Nestle India.

1987


The company constructed a factory at Nanjangud in Karnataka, to manufacture instant coffee.

1962


The company started manufacturing operations through its first factory at Moga, Punjab.

1959

Incorporation/Establishment

Nestle India was founded in 1959.


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Nestle India Limited - SWOT Analysis

SWOT Analysis - Overview

Nestle India Limited (Nestle India) is the manufacturer of milk products and nutrition, beverages, prepared dishes and cooking aids, chocolates and confectionery products. Strong financial performance, wide product offerings and strong brand portfolio are the key strengths of the company, even as its overdependence on domestic market and increasing current liabilities remain major areas of concern. Going forward, risks associated with changing consumer preferences and government regulations may affect the company's results of operations. However, strategic growth initiatives, recovering economy and growing nutraceuticals market provides ample growth opportunities for the company.

Nestle India Limited - Strengths

Strong financial performance Nestle India exhibited a strong financial performance during FY2010, which will enable it to pursue its growth plans, aggressively. It reported revenues of INR62974.0 million during FY2010, an increase of 21.8% over 2009. Also, its revenues grew at a compound annual growth rate (CAGR) of 20.3%, during the period, 2008-2010. In addition, the operating profit of the company was INR11451.1 million during FY2010, an increase of 25.0% over 2009. Furthermore, the net profit of the company was INR8186.6 million during FY2010, an increase of 25.0% over 2009. Such a strong financial performance of the company may improve its future growth and expansion plans. Wide product offerings The company’s wide range of products offerings help it to serves a huge customer base, which in turn enhances its top-line performance. Nestle India offers various food products under branded and private labels. It offers products under four food groups: milk products and nutrition, prepared dishes and cooking aids, beverages, and chocolates and confectionery. Milk products and nutrition products include infant milk substitutes, feeding bottles, infant foods, dairy whitener, processed milk, low fat milk, ghee, yoghurt, yoghurt drinks and skimmed and sweetened milk solids. Prepared dishes and cooking aids include noodles, snacks, Indian sauces and ketchups, pastes of traditional Indian spices and authentic Indian recipes, curry pastes, and dried soups. Beverages include instant coffee powder and health drinks. Chocolate and confectionery include chocolate layer, milk treat, nougat and caramel, caramel éclairs and mint rolls. Such a wide range of offerings also mitigates the risks associated depending on select products for a major share of revenues, besides fulfilling the diverse requirements of customer base. Strong brand portfolio Strong brand portfolio being enjoyed by its products provides a competitive edge for the company over its peers in the industry. Nestle India offers milk products and nutrition, prepared dishes and cooking aids, beverages, and chocolates and confectionery. Milk products and nutrition brands include NESTLÉ EVERYDAY Dairy Whitener, NESTLÉ EVERYDAY Ghee, NESTLÉ Milk, NESTLÉ Slim Milk, NESTLÉ NESVITA PRO-HEART MILK, NESTLÉ Fresh 'n' Natural Dahi, NESTLÉ Fresh 'n' Natural Slim Dahi, NESTLÉ Jeera Raita, NESTLÉ NESVITA Dahi, NESTLÉ MILKMAID Fruit yoghurt, NESTLÉ MILKMAID, NESTLÉ Dahi, NESTLÉ NESLAC, NESTLÉ Start Healthy Stay Healthy. Prepared dishes and cooking aids barnd include Maggi. Beverages brands include Nescafe, Sunrise, Nestea, and Milo. Chocolate and confectionery brands include Kit Kat, Munch, Bar One and Polo. Moreover, most of these brands not only enjoy strong brand recall, but also have stronger market share, worldwide. Strong brand portfolio will sustain company's products forward in the crowded consumer packaged goods market, going forward too.

Nestle India Limited - Weaknesses

Overdependence on domestic market The company’s overdependence on domestic market for its revenues exposes it to various risks associated with geographical concentration. Though the company exports its products to various geographic regions such as Sri Lanka, Bangladesh, Papua New Guinea, Fiji, Kenya, Russia, Australia and Africa, the majority of its revenues still come from India. During FY2010, the company generated 93.7% of its total revenue from domestic market. This dependence on domestic market could impact its operational and financial performance in the event of any economic, political or climatic change. It also could restrict its market share and growth opportunities. Increasing current liabilities Increasing current liabilities negatively impacts the company's liquidity position. The company’s current ratio was 0.6 at the end of FY2010. Weak ratio was principally due to an increase in the company’s current liabilities. Its total current liabilities stood at INR16696.1 million, an increase of 17.4% over 2009. Nestle India’s current ratio was also below the Food Processing industry average of 1.8. A lower than the industry average current ratio indicates weaker financial

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position of the company and its inability in meeting short term obligations than other companies in the industry. Limited liquidity position puts the company at a disadvantage while funding any potential opportunity arising in the market.

Nestle India Limited - Opportunities

Strategic growth initiatives Strategic growth initiatives such as expansion of manufacturing plants and new product launches will help the company to expand and strengthen its market presence, which in turn, will have a positive impact on its top-line performance. For instance, in January 2011, the company launched Neslac, an infant food in to the infant food market to increase its dominance in growing baby food market in India, which helps to increase its market share against rivals such as Farex from Heinz India. Apart from this, the company expands its geographic presence by establishing food and beverage manufacturing unit in Himachal Pradesh. Strategic initiatives such as these will enable it to offer its products to a broad customer base. Recovering economy The global economic slowdown, which impacted all sectors across the globe, is in a recovery mode. The economic slowdown had posed a major challenge for most of the companies as market volatility concerns have resulted into a sharp decline in the demand for various products. According to The World Bank, overall global GDP contracted by 2.2% in 2009, with Euro zone, Japan and the US contracting by 3.9%, 5.4% and 2.5%, respectively. The growth rate in developing economies too declined from 5.6% in 2008 to 1.2% in 2009. China, India and Brazil witnessed a GDP growth of 8.4%, 6% and 0.1% in 2009 as compared to 9%, 6.1% and 5.1% in 2008, respectively. Russia, Mexico and South Africa contracted by 8.7%, 7.1% and 1.8% compared to a growth of 5.6%, 1.4% and 3.7% in 2008, respectively. However, with various massive stimulus packages announced by respective governments to bring their economies back on track, the global output is expected to expand by 3.2% in 2011. Euro zone, Japan and the US are expected to grow by 1.7%, 1.8% and 2.7% in 2011, respectively. China is expected to post a GDP growth of 9% during 2011 while India, Russia and Brazil are expected to grow at a GDP of 8%, 3% and 3.9% in 2011, respectively. Though the GDP growth is below the 2007 levels, the recovering economy offers ample growth opportunities for the company, as companies across different sectors are pursuing their growth plans, more aggressively, than before. Growing nutraceuticals market According to a Federation of Indian Chambers of Commerce & Industry (FICCI)-Ernst & Young study, the Indian nutraceuticals market was estimated at US$1 billion, which has been growing at a compound annual growth rate of 18% for the last three years, driven by functional food and beverages categories. However, the latent market in India is two to four times the current market size and is estimated at US$2-4 billion with almost 148 million potential customers. Such a market outlook will help the company to expand its product offerings, which in turn increases its top-line performance.

Nestle India Limited - Threats

Changing consumer preferences Evolving consumers’ preferences pose a major challenge for the company. In this scenario, the success of the company's business depends on its ability to identify dietary habits and taste preferences of the consumers and to offer products, which match their preference. At the same time, regular introduction of new products and product extensions involves considerable development and marketing costs. If the company’s products fail to meet consumers’ preference, its return on investment could suffer. Government regulations The company, being a producer and marketer of food products, is subjected to various regulations by federal governmental agencies, including the Food and Drug Administration, the Department of Agriculture, the Federal Trade Commission, the Environmental Protection Agency and the Department of Commerce, as well as various state agencies, with respect to production processes, product quality, packaging, labeling, storage and distribution. In addition, advertising of its businesses is subject to regulation by the Federal Trade Commission. The company is also subjected to certain health and safety regulations, including those issued under the Occupational Safety and Health Act. Similar regulations have been introduced in various countries. The company should comply with all such stringent governmental regulations, failure of which may expose the company to new liabilities or may hamper its existing operations, which could result in decline in its profitability.

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Nestle India Limited - Key Competitors

The following companies are the major competitors of Nestle India Limited: Assam Company Limited Cadbury India Ltd Ccl Products (India) Ltd Gujarat Cooperative Milk Marketing Federation Ltd. McLeod Russel India Limited Tata Global Beverages Limited Warren Tea Ltd Tata Coffee Limited

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Nestle India Limited - Key Employees

Nestle India Limited, Key Employees

Name Job Title Board Level Since Age

Antonio Helio Waszyk Chairman, Managing Director Executive Board 2009

B. Murli Secretary, Senior Vice President - Legal

Senior Management

Dr. Rakesh Mohan Director Non Executive Board 2010

Michael W.O. Garrett Director Non Executive Board 1992 68

Pradip Baijal Director Non Executive Board 2007

Ravinder Narain Director Non Executive Board 1978 73

Richard Sykes Alternate Director Non Executive Board

Shobinder Duggal Director - Finance and Control Executive Board 2004

Christian Schmid Technical Director Executive Board 2010

Swati A. Piramal Director Non Executive Board 2010 52


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Nestle India Limited - Key Employee Biographies

Nestle India Limited, Key Employee Biographies

Antonio Helio Waszyk Job Title : Chairman, Managing Director Board Level : Executive Board Since : 2009

Mr. Waszyk has been the Chairman and the Managing Director of Nestle India Limited since 2009. He has been associated with the Nestle group since 1977. Prior to this, he was the Head of the Food Strategic Business Unit (SBU), Switzerland.

Shobinder Duggal Job Title : Director - Finance and Control Board Level : Executive Board

Mr. Duggal has been the Director for Finance and Control of the company since 2004. He has been associated with the company since 1986. Prior to this, he was the Vice President for Corporate Control of the company.


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Nestle India Limited - Locations and Subsidiaries

Head Office


Nestle House

Gurgaon

Zip: 122 002

India

Tel: + 91 124 6389300

Fax: + 91 124 6389411

Other Locations & Subsidiaries

Nestle India Limited, Locations

1st Floor, ICC Chambers, Near Saki Vihar Telephone Exchange

Mumbai

Zip: 400 072

India

M-5A, Connaught Circus

New Delhi

Zip: 110 001

India

Spencer Plaza, 6th Floor

Chennai

Zip: 600 002

India

Tower “C”, 12 Floor, DLF IT Park, 08, Major Arterial Road, Block -

AF

Kolkata

Zip: 700 156

India

Factory

Industrial Area

Mysore District

Zip: 571 301

India

Factory

Ludhiana-Ferozepur Road

Moga

Zip: 142 001

India

Factory

P.O. Cherambadi

Dist. Nilgiris

Zip: 643 205

India

Factory

Patti Kalyana, Kiwana Road

Samalkha, District Panipat

Zip: 132 101

India

Factory

Plot No. 1, Sector No. 1A

Factory

Plot No. 294-297

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Pantnagar, Dist. Udhamsingh Nagar

Zip: 263145

India

Ponda

Zip: 403 406

India

Factory

Village Maulinguem (North)

Bicholim Taluka

Zip: 403 504

India


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Nestle India Limited - Financial Ratios

Financial Ratios - Capital Market Ratios

Nestle India Limited, Ratios based on current share price

Key Ratios 21-Feb-2011

P/E (Price/Earnings) Ratio 40.98

EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization) 26.35

Enterprise Value/Sales 5.33

Enterprise Value/Operating Profit 29.29

Enterprise Value/Total Assets 12.87

Dividend Yield 0.01

Note: Above ratios are based on share price as of 21-Feb-2011. The above ratios are absolute numbers.


Financial Ratios - Annual Ratios

Nestle India Limited, Annual Ratios

Key Ratios Unit/Currency 2010 2009 2008 2007 2006

Equity Ratios

EPS (Earnings per Share) INR 84.91 67.94 55.39 42.92 32.68

Dividend per Share INR 48.5 48.5 35 33 25.5

Dividend Cover Absolute 1.75 1.4 1.58 1.3 1.28

Book Value per Share INR 88.72 60.29 49.09 43.4 40.33

Profitability Ratios

Gross Margin % 36.75 38.44 36.45 37.07 36.66

Operating Margin % 18.18 17.75 17.73 17.81 16.94

Net Profit Margin % 13 12.68 12.25 11.72 11.11

Profit Markup % 104.7 109.5 58.07 59.6 58.55

PBT Margin (Profit Before Tax) % 18.18 17.75 17.73 17.81 16.94

Return on Equity % 95.7 112.69 112.83 98.9 81.03

Return on Capital Employed % 122.16 138.92 140.73 128.07 101.72

Return on Assets % 31.4 31.45 30.8 28.57 25.39

Return on Fixed Assets % 73.35 74.8 82.57 77.54 68.07

Growth Ratios

Sales Growth % 21.94 18.62 23.4 24.44 13.69

EBITDA Growth % 23.79 18.85 23.01 28.63 3.98

Net Income Growth % 24.99 22.64 29.06 31.33 1.78

EPS Growth % 23.6 23.54 28.77 30.97 3.27

Working Capital Growth % 10.22 46.27 20.92 37.01 4.88

Cost Ratios

Operating Costs (% of Sales) % 81.82 82.25 82.27 82.19 83.06

Administration Costs (% of Sales) % 17.07 18.99 17.27 17.73 17.94

Liquidity Ratios

Current Ratio Absolute 0.63 0.6 0.67 0.67 0.7

Quick Ratio Absolute 0.28 0.25 0.31 0.25 0.34

Cash Ratio Absolute 0.15 0.11 0.16 0.04 0.1

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Leverage Ratios

Debt to Equity Ratio Absolute 0.01 0.01 0.04

Net Debt to Equity Absolute 0.03 0.05 0.03 0.1 0.24

Debt to Capital Ratio Absolute 0.01 0.01 0.03

Efficiency Ratios

Asset Turnover Absolute 2.42 2.48 2.51 2.44 2.29

Fixed Asset Turnover Absolute 4.62 5.31 5.14 5.43 5.21

Inventory Turnover Absolute 6.84 6.3 6.29 5.47 6.43

Current Asset Turnover Absolute 6.02 6.03 5.46 5.53 5.3

Capital Employed Turnover Absolute 7.36 8.89 9.21 8.44 7.29

Revenue per Employee INR 12,552,162

Net Income per Employee INR 1,642,916

Capex to Sales % 7.11 4.96 5.85 4.81 5.03


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Financial Ratios - Interim Ratios

Nestle India Limited, Interim Ratios

Key Ratios Unit/Currency Dec-2010 Sep-2010 Jun-2010 Mar-2010

Equity Ratios

Interim EPS (Earnings per Share) INR 21.1 22.67 41.14 20.94

Book Value per Share INR 88.72 91.02


Gross Margin % 51.96 50.64 50.24 49.85

Operating Margin % 18.11 18.54 18.65 19.24

Net Profit Margin % 12.07 13.27 13.38 13.56

Profit Markup % 110.04 103.8 102.28 100.63

PBT Margin (Profit Before Tax) % 17.18 18.37 18.65 19.24

Cost Ratios

Operating Costs (% of Sales) % 81.89 81.46 81.35 80.76

Administration Costs (% of Sales) % 7.16 6.04 7.19 6.38

Liquidity Ratios

Current Ratio Absolute 0.63 0.85

Quick Ratio Absolute 0.28 0.29

Leverage Ratios

Net Debt to Equity Absolute 29.84 18.05


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Financial Ratios - Ratio Charts

Nestle India Limited, Ratio Charts

EPS Operating Margin

Return on Equity Return on Assets

Debt to Equity Ratio Current Ratio


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Nestle India Limited - Share Data

Nestle India Limited, Share Data

Price (INR) as on 21-Feb-2011 2,879.85

EPS (INR) 84.91

Market Cap ( million INR) 335,526.69

Enterprise Value ( million INR) 335,419.31

Shares Outstanding 96,415,716


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Appendix

Methodology

Progressive Digital Media company reports are based on a core set of research techniques which ensure the best

possible level of quality and accuracy of data. The key sources used include:

Company Websites

Company Annual Reports

SEC Filings

Press Releases

Proprietary Databases

Notes

Financial information of the company is taken from the most recently published annual reports or SEC filings

The financial and operational data reported for the company is as per the industry defined standards

Revenue converted to USD at average annual conversion rate as of fiscal year end

Ratio Definitions

Capital Market Ratios

Capital Market Ratios measure investor response to owning a company's stock and also the cost of issuing stock.

Price/Earnings Ratio (P/E)

Price/Earnings (P/E) ratio is a measure of the price paid for a share relative to the annual income earned per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of income, so the stock is more expensive compared to one with lower P/E ratio. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. Price per share is as of previous business close, and EPS is from latest annual report. Formula: Price per Share / Earnings per Share

Enterprise Value/Earnings before Interest, Tax, Depreciation & Amortization (EV/EBITDA)

Enterprise Value/EBITDA (EV/EBITDA) is a valuation multiple that is often used in parallel with, or as an alternative to, the P/E ratio. The main advantage of EV/EBITDA over the PE ratio is that it is unaffected by a company's capital structure. It compares the value of a business, free of debt, to earnings before interest. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / (Net Income + Interest + Tax + Depreciation + Amortization)

Enterprise Value/Sales

Enterprise Value/Sales (EV/Sales) is a ratio that provides an idea of how much it costs to buy the company's sales. EV/Sales is seen as more accurate than Price/Sales because market capitalization does not take into account the amount of debt a company has, which needs to be paid back at some point. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Sales

Enterprise Value/Operating Profit

Enterprise Value/Operating Profit measures the company's enterprise value to the operating profit. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Operating Income

Enterprise Value/Total Assets

Enterprise Value/Total Assets measures the company's enterprise value to the total assets. Price per share is as of previous business close, and shares outstanding last

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reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Total Assets

Dividend Yield

Dividend Yield shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Formula: Annual Dividend per Share / Price per Share

Equity Ratios These ratios are based on per share value.

Earnings per Share (EPS)

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Formula: Net Income / Weighted Average Shares

Dividend per Share

Dividend is the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.

Dividend Cover

Dividend cover is the ratio of company's earnings (net income) over the dividend paid to shareholders. Formula: Earnings per share / Dividend per share

Book Value per Share

Book Value per Share measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: (Shareholders Equity - Preferred Equity) / Outstanding Shares

Cash Value per Share

Cash Value per Share is a measure of a company's cash (cash & equivalents on the balance sheet) that is determined by dividing cash & equivalents by the total shares outstanding. Formula: Cash & equivalents / Outstanding Shares


Profitability Ratios are used to assess a company's ability to generate earnings, based on revenues generated or resources used. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

Gross Margin

Gross margin is the amount of contribution to the business enterprise, after paying for direct-fixed and direct variable unit costs. Formula: {(Revenue-Cost of revenue) / Revenue}*100

Operating Margin

Operating Margin is a ratio used to measure a company's pricing strategy and operating efficiency. Formula: (Operating Income / Revenues) *100

Net Profit Margin

Net Profit Margin is the ratio of net profits to revenues for a company or business segment - that shows how much of each dollar earned by the company is translated into profits. Formula: (Net Profit / Revenues) *100

Profit Markup

Profit Markup measures the company's gross profitability, as compared to the cost of revenue. Formula: Gross Income / Cost of Revenue

PBIT Margin (Profit Before Interest & Tax)

Profit Before Interest & Tax Margin shows the profitability of the company before interest expense & taxation. Formula: {(Net Profit + Interest + Tax) / Revenue} *100

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PBT Margin (Profit Before Tax)

Profit Before Tax Margin measures the pre-tax income over revenues. Formula: {Income Before Tax / Revenues} *100

Return on Equity

Return on Equity measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. Formula: (Net Income / Shareholders Equity)*100

Return on Capital Employed

Return on Capital Employed is a ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings. Formula: EBIT / (Total Assets – Current Liabilities)*100

Return on Assets

Return on Assets is an indicator of how profitable a company is relative to its total assets, the ratio measures how efficient management is at using its assets to generate earnings. Formula: (Net Income / Total Assets)*100

Return on Fixed Assets

Return on Fixed Assets measures the company's profitability to its fixed assets (property, plant & equipment). Formula: (Net Income / Fixed Assets) *100

Return on Working Capital

Return on Working Capital measures the company's profitability to its working capital. Formula: (Net Income / Working Capital) *100

Cost Ratios

Cost ratios help to understand the costs the company is incurring as a percentage of sales.

Operating costs (% of Sales)

Operating costs as percentage of total revenues measures the operating costs that a company incurs compared to the revenues. Formula: (Operating Expenses / Revenues) *100

Administration costs (% of Sales)

Administration costs as percentage of total revenue measures the selling, general and administrative expenses that a company incurs compared to the revenues. Formula: (Administrative Expenses / Revenues) *100

Interest costs (% of Sales)

Interest costs as percentage of total revenues measures the interest expense that a company incurs compared to the revenues. Formula: (Interest Expenses / Revenues) *100

Leverage Ratios

Leverage ratios are used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.

Debt to Equity Ratio

Debt to Equity Ratio is a measure of a company's financial leverage. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries tend to have a higher debt equity ratio. Formula: Total Liabilities / Shareholders Equity

Debt to Capital Ratio

Debt to capital ratio gives an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This indicates to investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk. Formula: {Total Debt / (Total assets - Current Liabilities)}

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Interest Coverage Ratio

Interest Coverage Ratio is used to determine how easily a company can pay interest on outstanding debt, calculated as earnings before interest & tax by interest expense. Formula: EBIT / Interest Expense

Liquidity Ratios

Liquidity ratios are used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.

Current Ratio

Current Ratio measures a company's ability to pay its short-term obligations. The ratio gives an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. Formula: Current Assets / Current Liabilities

Quick Ratio

Quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Formula: (Current Assets - Inventories) / Current Liabilities

Cash Ratio

Cash ratio is the most stringent and conservative of the three short-term liquidity ratio. It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities. Formula: {(Cash & Bank Balance + Marketable Securities) / Current Liabilities)}

Efficiency Ratios

Efficiency ratios measure a company's effectiveness in various areas of its operations, essentially looking at maximizing its use of resources.

Fixed Asset Turnover

Fixed Asset Turnover ratio indicates how well the business is using its fixed assets to generate sales. A higher ratio indicates the business has less money tied up in fixed assets for each currency unit of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets. Formula: Net Sales / Fixed Assets

Asset Turnover

Asset turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue to the company. A higher asset turnover ratio shows that the company has been more effective in using its assets to generate revenues. Formula: Net Sales / Total Assets

Current Asset Turnover

Current Asset Turnover indicates how efficiently the business uses its current assets to generate sales. Formula: Net Sales / Current Assets

Inventory Turnover

Inventory Turnover ratio shows how many times a company's inventory is sold and replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. Formula: Cost of Goods Sold / Inventory

Working Capital Turnover

Working Capital Turnover is a measurement to compare the depletion of working capital to the generation of sales. This provides some useful information as to how effectively a company is using its working capital to generate sales. Formula: Net Sales / Working Capital

Capital Employed Turnover

Capital employed turnover ratio measures the efficiency of a company's use of its equity in generating sales revenue to the company.

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Formula: Net Sales / Shareholders Equity

Capex to sales

Capex to Sales ratio measures the company's expenditure (investments) on fixed and related assets' effectiveness when compared to the sales generated. Formula: (Capital Expenditure / Sales) *100

Net income per Employee

Net income per Employee looks at a company's net income in relation to the number of employees they have. Ideally, a company wants a higher profit per employee possible, as it denotes higher productivity. Formula: Net Income / No. of Employees

Revenue per Employee

Revenue per Employee measures the average revenue generated per employee of a company. This ratio is most useful when compared against other companies in the same industry. Generally, a company seeks the highest revenue per employee. Formula: Revenue / No. of Employees

Efficiency Ratio

Efficiency Ratio is used to calculate a bank's efficiency. An increase means the company is losing a larger percentage of its income to expenses. If the efficiency ratio is getting lower, it is good for the bank and its shareholders. Formula: Non-interest expense / Total Interest Income

Business Review

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