NESTLE INDIA IS THE NEXT NESTLE INDIA

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Nestle India is a subsidiary of Nestle (A Switzerland based food and energy beverages company). This is one of the companies which every long-term investor love to have in his/her portfolio.

Basically, an FMCG company, focusing completely on nutrients, food, and dietary supplement drinks.

In the year 2019, the company delivered net revenue of Rs. 12615 Cr. Recently, they have shared the quarterly results for Sep 2020 posted a net profit of Rs. 587 Cr. The result has a drop of 1.37% in Net profit compared to the previous year.

The better news here is the result has surpassed the analyst’s estimates despite a decline in yearly growth. In addition, they are providing Rs. 135 per share as a dividend to its investors.

By end of this article, you will be clear about the journey of the company in terms of business, share price, financial performance. Also, we will be analyzing fundamentals and calculating intrinsic value. Let go!

 

BUSINESS OVERVIEW – NESTLE INDIA

The company was found in the year 1959 headquartered at Gurgaon. The current asset of the company is almost Rs. 70.59 Billion.

They are operating in various products on segments like Beverages, Breakfast Cereals, Chocolates, Dairy, Nutrition, Foods, Vending food services.

FMCG led company have mainly focused on dietary food drinks for Infants and Kids under the brand names of,

  • Lactogen
  • Nan
  • Cerelac
  • Lacgrow
  • Nangrow

The other brands which dominate the food market are,

  • Maggi
  • Nescafe
  • KitKat
  • Munch

Almost 98% of the products consumed inside India are manufactured inside India. Nestle India’s 95% of revenue comes from Domestic Sales and the other 5% from Export.

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Most of the brands under Nestle India are brand leaders in their food segment.

  1. Cerelac – Infant Cereals
  2. Lactogen & NAN – Infant Formula
  3. Maggi – Instant Noodles
  4. Maggi Tomato Ketchup – Ketchup & Sauces
  5. Everyday – Tea Creamers
  6. Maggi Pazzta – Instant Pasta
  7. Kit Kat, Munch, MilkyBar – White & Wafers
  8. Nescafe – Instant Coffee.

KEY STRATEGIES ON BUSINESS:

  • Leading the market share of more than 85%
  • Focusing on domestic business growth. They have delivered almost 10.9% growth in domestic business.
  • Strong cash flow from operations.
  • Creating significant value for shareholders.
  • Sustainable brand growth
  • Continuous focusing on Innovation and Renovation. 71 innovative products since 2016.
  • Building Enduring Relationship with
      • 3500 Coffee Farmers.
      • 1,00,000 Dairy Farmers.
      • 4600 suppliers and 1700 Distributors.
      • 1200 Spice Farmers.
  • Developing a new sourcing mindset for entry into the organic food category.

Reduced Energy Consumption over the last 15 years:

  • Energy use (GJ/Ton) has come down by 45%.
  • Water Use (m^3/Ton) has come down by 54%.
  • Carbon Dioxide (Ton eq./Ton) has come down by 58%.
  • Wastewater Generation (m^3/Ton) has come down by 59%.

Gender Balance & Retention:

  • 63% of women are recruited as trainees.
  • 21% of the total women employees. It has increased by 31.25% in the last 3 years.
  • The current Attrition Level is 7.1%. It has come down by 34.54% in the last 3 years.

As a brand value and business performance, the company is much ahead of its peers. They always try to create a market place and make other players play with them. Creating innovative and unmet products overs many decades.

 

FINANCIAL PERFORMANCE OF NESTLE INDIA

Unlike, other companies the financial results are not in FY (Apr to Mar). The financial statements will be in the Current Year (CY), i.e. January to December.

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Financial Performance - Nestle India
Financial Performance – Nestle India

The above image should have given a clear idea of the revenue, EBITDA, PAT, and EPS of the last 5 years and 3 quarters of 2020.

  • Revenue has grown at a CAGR of 4.86% in the last 5 years, which is higher than the industry average.
  • EBITDA has grown at a CAGR of 7.91% in the last 5 years.
  • Net Profit has grown at a CAGR of 10.71% in the last 5 years.
  • The market share is almost 85% in FMCG – Food and Nutrients sector.

The Profit has grown at a rate of 10.71% in the last 5 years, lets check the share price growth in the last 5 years.

The share price has grown at a CAGR of 20.75%.

Just imagine, are you ready to invest in a company whose share price has grown 20.75% per annum, when profit has grown at just 10.71%.

Almost, the share price is trading 2 times higher than the actual growth.

 

FUNDAMENTAL ANALYSIS – NESTLE INDIA

Number of Shares – 9.64 Cr shares

Market Capital – Rs. 152968.32 Cr

 

VALUATION RATIOS:

  • Book Value – Rs. 200.41 per share
  • Price to Book value (P/B) – 79.16
  • Earnings Per Share (TTM) – Rs. 214.92 Per Share.
  • Price to Earnings (P/E) – 73.82 (Highly Expensive)
  • 5 Years of EPS Growth – 10.7%
  • Debt to Equity – 0.03 (Increasing over last 2 years)
  • Current Ratio – 1.78 (Less than threshold & decreasing over years)
  • Interest Coverage Ratio – 23.32
  • Return of Equity – 101.93%
  • Net Profit Margin – 15.61%
  • Free Cash Flow – Rs. 2081.47 Cr
  • Enterprise value/EBITDA – 50.4 (Highly Expensive)

 

SHAREHOLDING PATTERN:

  • Promoter – 62.76%
  • FII – 11.81%
  • Financial Institutions – 0.05%
  • Insurance Company – 4.71%
  • Mutual Fund – 4.19%
  • Retail Investors – 13.02%
  • Other DII – 3.46%

 

EXCESS LIQUID CASH PER SHARE:

TOTAL LIQUID ASSETS OF NESTLE INDIA:

  • Fixed Asset:
      • Investments – Rs. 743.6 Cr
      • Other Financial Assets – Rs. 80.4 Cr
  • Current Asset:
      • Investments – Rs. 1007.4 Cr
      • Cash and Cash Equivalent – Rs. 1293.1 Cr
      • Bank Balance – Rs. 14.89
      • Other Financial Asset – Rs. 55.79
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Total Liquid Asset – Rs. 3195 Cr

Total Liabilities – Rs. 5125.9 Cr

Excess Liquid Cash – (Rs. 1930.9 Cr) [Negative Return]

Excess Liquid Cash per Share – (Rs. 200.3) per Share.

 

INTRINSIC VALUE OF NESTLE INDIA:

The 5 years EPS growth is 10.71%

EPS (TTM) – Rs. 214.92 per share

Let us consider the margin of safety as 10% since it is an established company over the centuries.

So, the intrinsic value should be less than Rs. 3393 per share.

The current market price is almost 3.68 times higher than the intrinsic value.

 

INSIGHTS FOR INVESTORS:

  • Nestle India is of the best FMCG companies over the centuries offering more innovative brands in the Food and nutrients sector.
  • Business and qualitative analyses including financial performance are highly strong.
  • The profit growth over the last 5 years is more than 10.7%, which is highly phenomenal.
  • The deep concern is the share price has performed 20.7% in the last 5 years. The P/E and EV/EBITDA are highly overvalued with 79.16 times and 50.45 times than the earnings and EBITDA respectively.
  • The CMP (Current market price) is traded at nearly 4 times the intrinsic value.

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