Analyst Meet Update - Nestlé India (Hold): Focus on product innovation, expanding rural reach - ICICI Direct
(Time Zone: Arizona, USA)
We attended the Nestlé India Analyst Meet to get an insight on the CY20 operational performance. The management also elaborated on its strategy on new launches, rural distribution expansion & aggressive capex plan for the future. Nestlé registered volume growth of 6% in CY20 aided by strong growth in Maggi Noodles (~20% in Q4CY20) & KitKat (>20% in H2CY20). Some key challenges faced by the company during pandemic were supply constraints in noodles category in Q2CY20 & demand contraction from out of home channels in beverage segment. However, the management emphasised the strong traction in multi-pack noodles in rural regions in H2CY20 & strong growth in retail segment in coffee (>11% in CY20). One of the important highlight of the management commentary was continuance of its thrust of new launches in future as well. The company has launched 80 new products in last five years with 75% success rate and it has 40-50 innovation projects in the pipeline. NIL is increasing its rural presence since last five years from access to 1000 villages in 2016 to ~90000 villages in 2019. It aims to further increase its rural presence to 1.2 lakh villages by 2024. We believe the focus on innovation, increasing its reach and expanding capacity would cover both facets of creating demand and improving availability of its products.
Valuation & Outlook
With the clear strategy to focus on new product innovation, expanding rural reach and adding capacities, the company is expected to continue to grow at a sustainable pace for an extended period of time. Most of NIL's brands are targeting the young & aspirational class. It would be able to reap the benefits of a demographics led consumption boom. We maintain our target price of Rs. 18000 and HOLD recommendation (unchanged) on the stock.
Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.