Nestle India Fundamental Analysis and Future Outlook
Nestle relationship with India dates back to 1912 when it started operating as The Nestle Anglo-Swiss Condensed Milk Company (Export) Limited. The business then was of importing and selling finished milk products in the Indian market. Nestle India currently operates famous brands like Nescafe, Maggi, Milkybar, Kit Kat, Bar One, Milkmaid and Nestea. The company has also recently introduced products of daily consumption such as Nestle Milk, Nestle SLIM Milk, Nestle Dahi and Nestle Jeera Raita.
- The business model is such that around 49% of the revenue comes from Milk products and Nutrition business, 28% comes from prepared dishes and cooking aids, 13% from chocolate and confectionery and 10% from beverages. The firm also had 61 new product and brand launches since 2016 and is focused on deeper penetration in the Indian market with a wider portfolio.
- The company has also started ‘One Nestle’ initiative for improving its distribution capacity and has an ambition of opening 1000 kiosk from the present 400+. They are currently having 13.5+ million footfall per year in these Kiosks.
- Presently only 1.5% of the total sales are from online channels like Flipkart, Amazon, Big Basket, Grofers etc. The company is looking forward to a reach of 5–10% of the 200+ million e-commerce shoppers in the near future.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Nestle Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The company will face a double-digit revenue decline due to the Covid-19 outbreak and the subsequent lockdown. However, Nestle is better placed than other FMCG companies due to its large portfolio of Milk products as they were a part of essential items. Some key brands will see increased market share in the coming years.
- The near term concerns for the company is tackling the slowdown in consumption, restoring supply chains and managing labour crunch. The situation is only expected to improve after FY 2021 depending upon the effect on per capita income in the country.
- KitKat, Munch, NAN, , Maggi Noodles and Masala-ae-magic are outperformers within the overall product portfolio. Some of the products have seen a double-digit increase in revenue contribution. The company has also stepped up dividend per share over the years after the MAGGI issue. This shows management’s dedication to the shareholder’s interest.
- Operating margins, however, are likely to impacted by headwinds in commodities prices, investments in new products and increasing distribution reach.
- The company is looking forward to increasing its rural presence through Re-Distributor and Wholesale Hub Models. It currently has 7000+ Re-distributors and 2600+ Wholesale distributors. This may see a 5–10% increase in the near future after the Covid-19 situation clears.
Overall the company has solid fundamentals and a strong cash position to face a slowdown in the coming years. The management also has demonstrated capabilities in steering the company through uncertain times. Hence, Nestle still remains a good long term investment at a suitable entry point.
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