X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Consistent performance pays dividends… - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 27, 2001

    Consistent performance pays dividends…

    Steady, reliable and consistent value growth. That’s how one would describe Nestle India’s performance, the 51 percent subsidiary of global food products major, Nestle SA.

    The company has not only brought joy to the Indian consumers palate with culinary delights and healthy food supplements, it has also brought smiles to its investor’s in the process. Nestle’s turnover has grown at a compounded annual growth rate (CAGR) 19 percent over the past decade. Its profits have grown at an equally impressive CAGR of 21 percent during the period. In the last decade the company’s market capitalization has grown by more than 10 times.

    (Rs million) 9m FY00 9m FY01 Change
    Domestic Sales 9,524 10,097 6.0%
    Exports Sales 1,685 2,275 35.0%
    Total Sales 11,209 12,372 10.4%
    Other Income 57 75 31.6%
    Total Expenditure 9,546 10,205 6.9%
    Operating Profit 1,720 2,242 30.3%
    Operating profit margin (%) 15.3% 18.1%  
    Interest 217 120 -44.7%
    Depreciation 285 276 -3.2%
    Profit before Tax 1,218 1,846 51.6%
    Extraordinary Items 2 200  
    Tax 411 615 49.6%
    Profit after Tax/(Loss) 805 1,031 28.1%
    Net profit margin (%) 7.2% 8.3%  

    Though the company has seen some rough times in the recent past. Exports to Russia took a hit and as a result its turnover declined by 5 percent in fiscal year December ended 1999. But the company seems to have bounced back from this temporary setback. For the first nine months of fiscal year 2001 (January-September 2000), Nestle declared a 10 percent growth in turnover. This came on the back of a significant 35 percent jump in exports. The company’s bottomline improved by 28 percent during this period, as it managed to interest costs by 45 percent. It is this desire to continually improve its operational efficiencies that has stood the company in good stead.

    All this is a synopsis of the financial side of Nestle’s performance. Let’s look at Nestle’s product profile, which is responsible for this consistent performance.

    Nestle is India’s third largest food company having a leadership in coffee and culinary products. It has the widest portfolio of products in the food and beverage industry. The company derives its revenues from five major product categories - Coffee both domestic and exports (Nescafe), health beverages (Milo), chocolates and confectionery (Kit Kat, Munch, Bar One, Charge and Polo), milk products and baby foods (Cerelac, Lactogen, Nestum, Everyday Dairy Whitener and Milkmaid) and food products (Maggi noodles and ketchup).

    Category Brands Market share
    Coffee Nescafe Classic, Nescafe Select, Nescafe Sunrise 60%
    Culinary products Maggi Ketchup, Maggi Noodles 40%
    Milk products/
    baby foods

    Cerelac, Lactogen, Nestum, Milkmaid,
    Everyday Dairy Whitener

    -
    Chocolates & confectionary KitKat, Munch, Charge, Bar One, Polo 18-20%
    Health beverages Milo -

    Nestle dominates the Rs 9 billion (US$ 194 million) domestic branded coffee market with a 60 percent share. The company also dominates the baby food segment. Soluble coffee i.e. ‘Nescafe’ and its brand extensions contribute 38 percent to the company’s turnover, followed by milk products (23 percent). Nestle is firmly entrenched in these two categories.

    It is in the other product categories that Nestle is under increasing pressure. In the culinary segment, Nestle was the undisputed market leader in tomato ketchup till the previous year (47 percent share). However, since then its brand ‘Maggi’ has consistently lost market share to Hindustan Lever’s aggressive brand extensions of ‘Kissan’. Both companies are now tied neck to neck in this segment and command 40 percent share each.

    In the chocolates and confectionery segment, Nestle has failed to make a dent in market leader Cadbury’s market share (70 percent). Though its brand Kit Kat enjoys immense brand recall, the market leader’s clever positioning of its mother brand and introduction of smaller chocolate packages has put a spanner in Nestle’s growth in this segment. In the health beverage segment too, Nestle has not made much headway since market leader Smithkline dominates this segment.

    Nevertheless, Nestle understands that it has too keep introducing new products and expand its folio in India. This will give it the critical mass for growth in future. In 2000, the company made a tentative entry in the dairy segment with the launch of its packaged milk. The company plans to introduce yogurts this year. The dairy segment is a Rs 30 billion (US$ 645 million) market and is growing at 10 percent annually.


    Similarly, Nestle also entered the premium bottled water segment with ‘Perrier’, its international brand. The company will also launch the ‘Pure Life’ brand aimed at the masses in 2001. Currently, India’s per capita consumption of bottled water is only half a litre, compared to 45 litres in the US. Thus this Rs 5 billion (US$ 108 million) segment offers immense potential.

    However, in the initial years investments in these segments will not yield high returns to the company. This is like to put its return on invested capital under pressure in the coming years. Also, though the exports have surged in the current year, Nestle’s dependence on Russia is a concern. But given the company’s past track record, Nestle’s strict control on operational efficiencies, will see it through these short-term hurdles.

     

     

    Equitymaster requests your view! Post a comment on "Consistent performance pays dividends…". Click here!

      
     

    More Views on News

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    Nestle India: Sales Recovery Remains an Issue (Quarterly Results Update - Detailed)

    Oct 7, 2016

    Nestle India declared results for the quarter ended June 2016. Here is our analysis of the result.

    GSK Consumer: On the Recovery Path (Quarterly Results Update - Detailed)

    Jun 20, 2017

    While GSK consumer reported muted revenue growth, volumes are seen to be recovering.

    Nestle: Done Well to Regain its Share (Quarterly Results Update - Detailed)

    Jun 9, 2016

    Nestle announced its results for the quarter ended March 2016. The company's revenues declined by 9% YoY, while profits declined by about 19% YoY during the quarter.

    Nestle: Looking to make up the lost ground... (Quarterly Results Update - Detailed)

    Nov 2, 2015

    Nestle announced its results for the quarter ended September 2015. While revenues were down by a third, profits declined by 60% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    NESTLE SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK NESTLE

    NESTLE 5-YR ANALYSIS

    Detailed Financial Information With Charts

    COMPARE NESTLE WITH

    MARKET STATS