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Pure Life from Nestle - Views on News from Equitymaster
 
 
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  • Feb 13, 2001

    Pure Life from Nestle

    Nestle India has finally launched its mineral water brand ‘Pure Life’ for the mass markets. The brand is being positioned as a pure, safe and balanced drinking water. The Rs 5 bn mineral water market is already over crowded with more than 180 local brands. Price plays an important role in the domestic market and is the key volume driver.

    Currently, the market is dominated by the leading brands Bisleri and Bailley, which together control 75% of the market. Nestle India with its mineral water brand aims to achieve a market share of around 50% in the next two years. It will launch the brand at a price of Rs 12 for 1 litre pack size compared to a price of Rs 10 offered by its competitors for a similar pack size. The company had earlier launched two of its international premium mineral water brands ‘Perrier’ and ‘San Pellegrino’ targeted at the niche markets. However the premium segment of the market is valued at a tiny Rs 10 m with the only competitor ‘Evian’ from Danon, marketed by Britannia.

    Brand overview
    Company Brands Market Share
    Nestle Pure Life -
      Perrier -
      San Pellegrino -
    Britannia Evian  
    Parle Agro Bailley 27%
    Parle Bisleri Ltd. Bisleri 48%
    Pepsi Aquafina 25%
    Coke Kinley
    Other local brands  

    Nestle’s parent has a strong presence in the global bottled water market with more than 13 brands including ‘Vittel’, ‘Perrier’, ‘Valvert’ and ‘San Pellegrino’. Beverages including mineral water contribute more than 25% of Nestle SA’s total revenues. Thus, the Indian company has a strong support of its parent in introducing the brand with more operating efficiencies.

    The 500 million litre mineral water market is the only FMCG segment, which is growing at a phenomenal rate of 70% per annum. As the market size expands the companies could introduce flavoured water to maintain their existing market share. The leader would be the one, which can offer an entire portfolio with all pack sizes and competitive prices. Distribution outlets of the company also play an important role. If Nestle is able to launch its brand successfully and gain a market share of at least 20% in the next three years (conservative estimate) then this venture is expected to add revenues of about Rs 4 bn to its topline. It will also enhance its profitability, as normally the margins in mineral water are relatively higher than other FMCG products.

    However, given the fact that price plays an important role in driving the volumes, Nestle may find it difficult to grow. The company is launching the brand at Rs 12 per litre while its nearest competitor Coke’s ‘Kinley’ brand is already available at Rs 4 for 500 ml bottle. This effectively comes to Rs 8 per litre of Kinley. Also other brands are available at Rs 10 per litre. In such a competitive scenario, it will be a challenge for Nestle to sell its brand at a premium.

    At the current market price of Rs 557, Nestle is trading at a P/E multiple of 39 times its December ’00 projected earnings with a market cap to sales ratio of 3.4 times.

     

     

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