1

REPORT ON

FINANCIAL STATEMENT ANALYSIS OF

NESTLE INDIA LTD.

PREPARED BY-

ASHWIN K (032)

JATIN KUMAR MAHESHWARI (062)

LAKSHMI NARASIMHAN (072)

MILAN AGARWAL (081)

MISHA NIGAM (172)

MONINTHAR KUMAR NAYAK (082)

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TABLE OF CONTENTS

I. Purpose and Scope …………………………………………………………………..................... -2-

A. Objective of the Research ………………………………………………………………………..………….…. -2-

B. Data Sources ………………………………………………………………………………………………………….. -2-

C. Research Methodology …………………………………………………………………………..………..…….. -2-

II. Analysis of Financial Statements (Ratio Analysis)….……………………………… -3-

A. Balance Sheet ………………………………………………………………………………………..……….……… -3-

B. Income Statement …………………………………………………………………………………………...…….. -8-

C. Cash Flow Statement ………………………………………………………………………….………….………-10-

D. Financial Statement Ratios …………………..……………………………………………………………… -11-

E. Other important values …………………………………………………………………….….……………… -15-

III. Percentage contribution to sales (2015)….…………………………………...…..…-17-

IV. SWOT Analysis………………………………………………………………………………..……..-17-

V. Major Competitors ………………………………………………………………………….……..-17-

VI. Results…………………………………………………………………………………………………. -18-

A. Major and Minor Finding ………………………………………………………………………………..…....-18-

B. Conclusions …………………………………………………………………………………………………………..-18-

C. Projections …………………………………………………………………………………………………………...-19-

VII. Works Cited……………………………………………………………………………………..... -22-

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I. PURPOSE & SCOPE

A. Objective of the Research

The objective of this paper is to thoroughly analyze Nestle India Ltd’s financial history and status for the last five years (2011 – 2015). Also, Nestle India’s future growth and financial stability for the next two years will be examined (forecast for 2016-2017). Other important topics will be discussed which include: the growth in net income, the growth in sales revenue, the growth in operating income, the growth in assets, and the growth in various and significant costs. Moreover, MVA, EVA, earnings per share, movements of the stock prices in the past, and the capital structure of will be examined. To support the analysis, different relevant ratios will be calculated for the company in order to estimate its current status, and also to compare Nestle India Ltd. to Britannia Ltd.

B. Data Sources

Based on the sources cited above, the following tables were extracted or created:

• Nestle India Ltd’s Balance Sheet, Income Statement and Cash Flow Statement• Comparative Historical Total Assets growth analysis• Nestle India Ltd’s Asset Structure – Common Size• Nestle India Ltd's 5 Yr. Common Size Balance Sheet• Comparative Balance Sheet, Income Statement, Cash Flow Statement & Ratios• Nestle India Ltd’s 5-year Average Ratio Report

C. Research Methodology

The financial analysis of Nestle India Ltd is based on evaluating company and in-dustry data from various sources. A trend analysis was performed using data for the last five years, and presented in Excel charts and tables. A vertical analysis was per-formed, which also involved an industry comparison. Common-size statements were created, where each item was shown in percentage terms from a common base. In the case of a firm’s assets, I treated the total assets as equalling 100.

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II. ANALYSIS & FINANCIAL STATEMENTS

Nestle’s fiscal year always ends in the end of December. The following results have been collected and following graphs have been drawn and interpretations drawn:

A. BALANCE SHEET RATIOS

1. ASSET GROWTH:

2010 2011 2012 2013 2014 20150

10000

20000

30000

40000

50000

60000

70000

Asset Growth

Fixed AssetsInventoriesCash&BankLoans&AdvTrade ReceivablesCurrent AssetsTotal Assets

TOTAL ASSETS:-

The Total Assets of the company has decreased over the years and there has been a decline in growth over the years with the exception of Dec-15 where it showed a growth of 4.48% to the base year 2010.

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Year 2011 2012 2013 2014 2015

Total Assets 44017.8

51639.2

63142.7

58195

60804.6

Percentage

Growth % 72.00 17.31 22.27 -7.83 4.48

Total Current Assets:

Current assets have increased over the years with the exception of Dec-14 where it displayed a dip in growth of -15% in 2014. The growth for the past year has been high showing 26% in 2015 compared to its previous year.

Year 2011 2012 2013 2014 2015Total Current Assets

12903.4

14901.2

23017.2

19636.7

24796.1

Percentage Growth 23% 15% 54% -15% 26%

2. ASSET STRUCTURE:

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2010 2011 2012 2013 2014 20150.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Asset Structure Analysis

Fixed AssetsInventoriesCash&BankLoans&AdvTrade ReceivablesCurrent Assets

The current assets form a significant portion of the total assets as FMCG companies do not have lot of Non-Current assets. Inventories form a major portion of the current assets over the years, contributing to 35% of it on an average. Inventories are valued at the lower of cost and net realisable value. Cost is computed on a weighted average basis. The percentage of trade receivables has been increasing very slightly over the years indicating the company is not providing much on credit. In the non-current assets, long term loans have not changed significantly. Cash and bank balance has been increasing on an average of 8 to 9 %.

3. LIABILITIES AND EQUITY GROWTH:

Total liabilities and Equity has increased over the years. Out of the liabilities and Equity, trade payables form a major part contributing to over 35-45% over the years. Long term provisions include Provision for employee benefits (pension, medical, compensated absences and others).Provision for income tax (net of advance tax) and other provisions (including for statutory levies etc.

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2011 2012 2013 2014 20150

10000

20000

30000

40000

50000

60000

70000 Liability & Equity Growth

ShareholdersFundLongterm BorrowingsOther Current LiabilitiesLongterm ProvisionsTrade PayablesCurrent LiabilitiesTotal Liabilities

TOTAL LIABILITIES:

Total Liabilities have decreased over the years showing a growth of 22.907% in the year ending 2013.The growth has been around -8% for the year ending 2014 and and started to increase by 4% by the end of 2015.

Year 2011 2012 2013 2014 2015

Total Capital And Liabilities 44017.8 51639.2 63142.7 58195 60804.6

Percentage growth 72% 17% 22% -8% 4%

RESERVES AND SURPLUS:

There was an increase in the reserves and surplus over the years till 2014. The reserves and surplus growth has declined marginally in the year ending 2015 when compare to the year before.

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Year 2011 2012 2013 2014 2015

Reserves and Surplus

11775.41

17019.9

22723.3

27407.9

27214.2

4. FINANCIAL STRUCTURE ANALYSIS:

2011 2012 2013 2014 20150.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Financial Structure Analysis

Shareholders FundLong Term DebtOther Current LiabilitiesLong Term ProvisionsTrade PayablesCurrent Liabilities

In the period 2011 – 2015, Nestle Equity/ Shareholders fund keeps increasing which denotes its strong financial stability. Nestle is able to finance its operations with both Current & Other Current Liabilities but in the main form of Trade Payables. The company made provisions for Long term under Long term Provisions.

B. PROFIT AND LOSS RATIOS

1. INCOME STATEMENT GROWTH:

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2010 2011 2012 2013 2014 2015

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000 INCOME GROWTH

net salescogsgross income

REVENUES:

During the analysed period the amount of Total Revenues increased successively till 2014 which showed a positive trend but there was a sharp decline in 2015 which went below 2012. The net sales increase was high in 2011 which was 20% and there after it followed a slower increase growth of 11%, 9%, 8% & finally went to negative 17%.

COST OF GOODS SOLD:

The COGS growth was 16% in 2011 & till 2013 the growth was very small and again in 2014, the growth was 15% and then declined to negative 25% in 2015 which is mainly because of fluctuations in sales.

GROSS INCOME:

The Gross income was high initially in 2011 which was 24% and then the growth was less and went low in 2014 which was only 3% and finally followed a similar pattern of Revenues & COGS and declined to 10%.

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2010 2011 2012 2013 2014 2015

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

Income Growth

total expense EBITA income tax net income

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

According to the overall growth these expenses also increased till 2014 with total increase of 57% and then declined in 2015 by 15% compared to 2014.

EBITA:

Earnings Before Interest, Taxes, Depreciation and Amortization increased from 2010 till 2014 with slower growth rate but declined tremendously in 2015 which went below 2010 from 12,789.3 million in 2010 to 11,641.8 million in 2015.

INCOME TAX:

The growth in the amount of income taxes reflects the growth in Nestle’s operating income. The income taxes also followed a similar pattern of increasing till 2014 and then declined drastically in 2015 from 2014 with 58% which was below 2010. This means company managed to keep taxes as low as possible in recently.

NET INCOME:

There was very little growth in Net income for Nestle till 2014, which again

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drastically declined in 2015 at 52% rate compared to 2014. The Net income 2010 was 8,186.6 million and in 2015 it was 5,632.7 million which shows 31% decline.

C. CASH FLOW STATEMENT RATIOS

(i) Net Cash from Operating Activities

The net cash flow from operating activities saw an increase from 2011 till 2013 which was followed by a decline till 2015. The net cash from operating activities saw an overall decline of 5.19% from 115.817 billion (2009) to 109.81 billion (2015).

(ii) Net Cash used in Investing Activities

The net cash used in investing activities has seen a significant decrease in outflow of cash for investing activities. The reason could be also attributed to the increase in interest and dividends received. Overall the cash outflow used for investing activities decreased by 95.47%.

(iii) Net Cash used in Financing Activities

The net cash used in financing activities rose from 32.32 billion (2011) and posted negative numbers for the next 4 years indicating cash outflow. It touched the peaks in 2014 with -163.528 billion.

All figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billionsAll figures in billions

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(iv) Net change in Cash and Cash Equivalents

There was a negative change in cash for 2 years 2011 and 2013 with the figures being 4.439 billion and 42.296 respectively. The peak change was recorded in 2013 with 77.354 billion.

D. FINANCIAL STATEMENT RATIOS

1.) LIQUIDITY RATIOS

2015 2014 2013 2012 20110

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

CURRENT RATIOQUICK RATIODEBT TO EQUITY

(i) Current Ratio:

Defined as the ratio of current assets and current liabilities, the current ra-tio shows the ability of the company to meet its short-term liabilities and obligations. Therefore, the current ratio is better if greater than 1 because the company should have greater current assets as compared to current li-abilities. 2:1 is the standard current ratio.

Nestle’s current ratio has been improving over the years. In the recent years, it has been close to 2:1. Hence, Nestle gives an indication of good performance.

(ii) Quick Ratio:

This is the ratio of quick assets to the current liabilities. It is clear from the graph that the quick ratio has risen at a steady rate. The ratio is close to 1:1, which is the standard quick ratio. This is a positive sign, meaning Nestle had no problems in meeting its short-term obligations.

(iii) Debt to Equity:

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This ratio indicates the financial leverage of the company. The graph indic-ates that the company is using neither too much debt to finance its opera-tions, nor the company is not leveraging. The declining trend of ratios (0.7 to 0.1) indicates the lesser application of debt to finance the assets.

2.) ASSET MANAGEMENT RATIOS

2015 2014 2013 2012 20110

20

40

60

80

100

120

INVENTORY TURNOVER ASSET TURNOVERDEBTORS TURNOVER

(i) Inventory Turnover Ratio:

The company’s inventory turnover has remained almost the same over the years.Indicating the number of times the inventory is sold or used in a year. In the recent years, this ratio has declined a little, which is a good indicator and shows that the company has been able to sell its goods faster.

(ii) Asset Turnover Ratio:

Measuring the ratio of net sales and total assets, this ratio indicates the utilisation of the assets of the company towards its sales. The graph does not show a very good picture of the utilisation of assets as the ratio has been very low and constant all over.

(iii) Debtors Turnover Ratio:

It shows the efficiency of the company to use its assets. A high ratio in the graph shows that the company’s collection of accounts receivable is effi-cient and it runs on cash basis.

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3.) PROFITABILITY RATIOS

2015 2014 2013 2012 20110

10

20

30

40

50

60

70

80

RETURN ON EQUITYRETURN ON CAPITAL EMPLOYEDRETURN ON ASSETSNET PROFIT MARGIN

(i) Return on Equity:

This is the ratio of Net Income and Shareholders’ equity and shows how many dollars of profit a company generates with each dollar of share-holders’ equity. With growth companies, there is generally a higher ra-tio. However, the graphs shows a declining trend of this ratio which means that the company has not been earning sufficient cash against the shareholder’s funds.

(ii) Return on Capital Employed:

With the ratio of EBIT and Capital employed, this ratio measures the profitability of the company and the efficiency with which it employs its capital, i.e. the total of shareholders’ equity and debt liabilities. A higher ratio shows a better utilisation of capital. However, the graph shows a falling trend. In 2015 this ratio is as low as 12 approx. Thus, Nestle is not putting its capital to the best use and has got opportunities for improve-ment.

(iii) Return on Assets:

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The ratio of net income and total assets shows how efficiently the man-agement is utilising its assets towards the generation of earnings. This ratio has not fluctuated too much over the 5 years, however in 2015 it declined significantly, which is not a good sign as it shows that Nestle has not been able to earn optimum earnings on the assets employed.

(iv) Net Profit Margin:

It shows the revenue earned, against the sales made, after deducting all operating expenses, interest, taxes, etc. The graph shows a significant decline in this ratio in 2015 which is a bad indicator.

4.) MARKET VALUE RATIOS

2015 2014 2013 2012 20110

20

40

60

80

100

120

140

EPSDPSP/EMP/BV

(i) Earnings Per Share (EPS):

It shows the earnings made per share of the company. Nestle had a nice record of EPS for the 4 years, however in 2015 it declined significantly which is a bad signal for the company. It might not attract the investors.

(ii) Dividend Per Share (DPS):

The dividend paid per share of company has recorded a good show till previous years but declined in 2015 due to fall in EPS. This is not a good signal but can also be seen in the sense that company might be using

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more part of its earnings for reinvesting in the business rather than dis-tributing as dividends.

(iii) Price/ Earnings Ratio:

The ratio of market price and earnings per share shows the rising trend of P/E ratio is a good news for the company because this means the company has a high standing in the market as compared to what it actu-ally values.

(iv) Market Price to Book Value Ratio:

This ratio has declined over the years which means what market stand-ing the company has in comparison to its book value has declined but is all the way a good number.

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E. OTHER IMPROTANT VALUES

Calculation of Tax Rate:

PBT= 8136.3TAX= 2503.6TAX RATE= 2503.6*100/8136.3 = 30.77%

Year 2016-15 2015-14 2014-13 2013-12 2012-11Tax Rate 30.77 33.23 33.43 31.22 30.72

Weighted Average Cost of Capital (WACC):

WACC (2016) = E/E+D * Cost of Equity + D/E+D * Cost of Debt * (1-tax rate)

Year 2015 2014 2013 2012 2011WACC 9.01 5.05 5.42 3.37 0.00

As of today, Nestle India Ltd's weighted average cost of capital is N/A. Nestle India Ltd's return on capital invested is 136.10%.

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Market Value Added (MVA):

(Number of common shares outstanding * Current stock price) - Investors supplied capitalInvestors supplied capital is the sum of book values for Equity, Debt and Preferred stock

This amount represents the difference between the money Nestle’s shareholders have invested in the company since its founding – including retained earnings – versus the cash they could get if the company was sold at that point.

Economic Value Added (EVA):

EVA = EBIT*(1-Tax Rate) – (Total Net Operating Capital)*(WACC) Total Net Operating Capital = Cash & Equivalents + AR + Inventories + Net Property+ Plant & Equipment + AP

Nestle India’s EVA= 816.92*(1-0.30) – (242.77*9.01) = -1615.51

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This amount shows the extent to which Nestle India has increased the shareholder value. The negative figure reflects a decline in the shareholder value.It can be seen from the data that Nestle India’s stock price has shown a sufficient increase in the years. There has been a line of trend of increase in the market price. However, in 2015 end the prices declined significantly. But it has shown signs of recovery in the first quarter of 2016. The share prices went down in 2015 because of the fall in sales and profits of the company. The company is now improving its performance and recovering its profits and share prices.

Macroeconomic Variables

Many macro-economic factors, which are beyond the company’s control, may affect Nestle’s financial conditions and operating results. The company is subject to risks associated with laws, regulations, and industry standards. Economic conditions, political events, tax laws, inflation, unemployment rates, etc. can adversely affect company’s operations. Also, considering the fact that the company derives a large portion of its revenue from abroad, Nestle’s business is subject to the risk of inter-national operations. The stock market as a whole may experience (as it happened in the past) extreme price and volume fluctuations that may affect Nestle’s market price, regardless of its operating performance.

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III. PERCENTAGE CONTRIBUTION TO SALES IN 2015:

The above pie chart shows the share that each product type of Nestle India contrib-utes to the total sales of the company. Here it is evident that Milk Products hold the largest share in the total sales followed by Prepared Dishes and cooking aides, chocolate and confectionery, while beverages hold the smallest share in the total sales of Nestle India. Thus, the company earns the highest volume of sale from the Milk Products and Nutrition sector.

IV. SWOT ANALYSIS

V. MAJOR COMPETITORS

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This graph shows that Nestle has earned the most and got the top position in terms of the total sales in comparison to its major competitors like Pepsi, Unilever, etc. However, in profit margin, the company lagged behind many competitors like Pepsi, Cadbury, Unilever, etc. This shows that although the company manages to make high sale volume, but the profit value is less because of which the profit margin is low in comparison to other companies.

COMPARISON WITH MAJOR COMPETITORS:

Nestle

Britan

nia

GlaxoSm

ith Con

KRBL

Hatsun Agro

Coffee Day

Vadilal

Ind

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

Market CapTotal Assets

22

Nestle

Britan

nia

GlaxoSm

ith Con

KRBL

Hatsun Agro

Coffee Day

Vadilal

Ind-1000

0

1000

2000

3000

40005000

6000

7000

8000

9000

Net ProfitSales Turnover

These two graphs show the performance of Nestle India in comparison to the com-petitors. From the above information we can interpret that it stands at the top posi-tion in terms of the market cap and sales turnover. This means that Nestle India’s performance is quite good as compared to its competitors. However, keeping in mind the high sales turnover, the profit of the company is not high enough. Thus, we can say that although the company is making high sales, but its profit making strategy is not good due to which it earns low profits.

VI. RESULTS

A. MAJOR & MINOR FINDINGS

Based on the findings in the trend and common size analysis, Nestle India’s overall performance has been above average over the years but in 2015 it declined to some extent and the performance became average in this year. However, there have been signs of improvement in the coming years.

Analysis of company’s Balance Sheet showed that Nestle India’s growth in Total As-sets, Common Equity, and Retained Earnings was above industry average.Analysis of company’s Income Statement showed that Nestle India’s growth in Net Sales, and Gross Income was above its competitors.

Analysis of company’s Cash Flow Statement showed that Nestle India’s Net Cash Flow from Operating Activities was above the industry average, and that resulted in a positive Net Change in Cash although cash has been used in both investing as well as financing activities.

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B. CONCLUSION

Based on the performed analysis, Nestle India is financially healthy and strong. The company’s growth has been extraordinary during the past five years. In the recent year the performance has degraded to some extent but the company has wide op-portunities to recover. Nestle India is able to finance its operations by current liabil-ities only. It also has a strong base to meet its current liabilities. Its financial struc-ture is outstanding. Nestle India has quite significant amount of long-term obliga-tion; however its ability to meet its short-term and long-term obligation is good, which makes the company very financially independent. Revenues and Net Income are increasing each year.

Retained Earnings reached Rs.5632 million in 2015, which is an indicator for the fin-ancial power of Nestle India. Due to the fact that sales are constantly increasing, and backed by Rs.5000 million (2015) in Cash and equivalents, the company can afford future acquisitions.

During the years, Nestle India substantially improved in its key measures of profitab-ility but declined in the year 2015; however it has a very high brand value and suffi-cient accumulation of assets and revenues which makes it easy for the company to recover in future.

In terms of ROA, ROE, and profit margins, Nestle India strengthened financially and now has better ratios than its competitors and the overall computer hardware in-dustry. Based on the above facts it can be concluded that Nestle India has been do-ing well over the years, declined in 2015, but has shown signs of improvement in the first two quarters of 2016 and has further opportunities of growth.

C. PROJECTION

The future for Nestle India looks great. The company has significant momentum in its favour: massive brand power, innovative product design, and a strong portfolio that leverages individual products to boost demand of other products. We believe that Nestle India will continue in the future without a long-term debt. I also assume that there will be no significant change in capital expenditures and net working cap-ital. Due to the constant development of innovative technologies, it is highly likely that Nestle India’s revenues will continue to grow in the future. It has been forecas-ted that the revenues will grow. Following forecasts are for 2016, 2017 and 2018:

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Annual Income Statement Data

Actuals in M INR Estimates in M INR

Fiscal Period Decem-ber 2013 2014 2015 2016 2017 2018

Sales 90 619 98 063 81 233 95 382 110 344 125 500

Operating income(EBITDA) 19 683 21 301 16 810 19 922 23 620 27 351

Operating profit (EBIT) 16 384 17 926 13 338 16 846 20 357 23 682

Pre-Tax Profit (EBT) 16 780 17 744 8 136 17 592 21 506 25 230

Net income 11 171 11 847 5 633 11 676 14 334 16 800

P/E ratio - - - 48,8 39,9 33,7

EPS ( INR ) 116 123 58,4 122 150 177

Dividend per Share ( INR ) 48,5 63,0 48,5 75,2 93,0 113

Yield - - - 1,26% 1,56% 1,90%

Reference price ( INR ) 5965.6 5965.6 5965.6

We expect Nestle India to demonstrate higher earning margins than its competitors in the next few years, as they are moving into small consumer electronics, as well as remaining in the lower margin personal computer sector.I don’t foresee a major drop in Nestle India’s stock price in the near future. Instead, we believe that Nestle India’s stock price will continue to grow, reflecting the high future growth and profitability expectations. We feel that Nestle India will continue to succeed in the future, and will continue to outperform its peers.

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VII. WORKS CITED

http://www.4-traders.com/NESTLE-INDIA-LIMITED-9058921/financials/

https://markets.ft.com/data/equities/tearsheet/forecasts?s=NESTLEIND:NSI

http://www.moneycontrol.com/financials/nestleindia/balance-sheetVI/NI

www.nestleindia.com/investors

http://finance.google.com/finance?

http://quote.morningstar.com/Quote/Quote.aspx?pgid=hetopquote&ticker

http://stocks.us.reuters.com/stocks/overview.asp?symbol

http://www.smartmoney.com/eqsnaps/?story=snapshot&symbol

http://tobsefin1.swlearning.com

http://finance.yahoo.com/q?s