Nestle India - Analyst meet update - ICICI Securities

Suresh and team's presentation provided significant (and much needed) insights to Nestlé's performance and strategic direction. Q2CY20 underperformance (versus other food companies) was primarily driven by business complexity (manufacturing, sourcing etc), category characteristics and likely higher exposure to out-of-home consumption. Recovery of Maggi portfolio to 19% growth in Q3CY20 is a testament to this. Key takeaways were - (1) recalibration of new product launches in the near-term as consumer is less experimental (staying topical with focus on Indian tastes, breakfast), (2) long-term growth opportunity from introducing products from Nestle global portfolio, (3) penetration-led volume growth is a priority - premiumisation will take its own course with rising income levels. Our long-term positive view is intact; however, our primary research indicates likely lower birth rates in CY21, a potential headwind for its infant nutrition business in CY21. HOLD retained.

Key messages:

- Sustained market leadership in 85% of portfolio

- 5% RIG (real internal growth, loosely defined as volume + mix) in 9MCY20 (8% in 1Q, flat in 2Q, 7% in 3Q)

- Redistribution turnover (underlying sales) recovered to double-digit growth over pre-COVID levels

- Large towns were more impacted during the lockdown in April - revenue from towns with population below 100,000 declined by ~40% in April versus a 50% decline in larger towns

- Rural growth in Q3CY20 was at 12%, double of 6% urban growth

- New product launches accounted for ~3% of revenue in 9MCY20

- Ecommerce channel contribution increased significantly to 3.4% in 9MCY20 from <2% in CY2019

- 23% of employees are women in 9MCY20 (16% in 2016, 21% in 2019)

- 99% of what is sold is 'Made in India'

- New factory in Sanand (Gujarat) could potentially drive faster growth in Western region (which is under-indexed at 18% of overall revenue)

- Valuation and risks: We model revenue / EBITDA / PAT CAGR of 12 / 17 / 15 (%) over CY19-21E. Maintain HOLD rating with DCF-based target price unchanged at Rs16,500. Key risks are consumption slowdown linked to economic performance and keyman risk.

Shares of NESTLE INDIA LTD. was last trading in BSE at Rs.17224.35 as compared to the previous close of Rs. 16995.6. The total number of shares traded during the day was 4301 in over 1735 trades.

The stock hit an intraday high of Rs. 17400 and intraday low of 17000. The net turnover during the day was Rs. 74214637.

Source : Equity Bulls

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