NESTLÉ INDIA

Revenues, profits continue to soar

Nestlé India is the Indian subsidiary of Swiss multinational Nestlé SA, the largest food company in the world with a strong brand portfolio in the packaged food and beverages space. Thanks to their excellent quality, many products of the company are highly popular and many of them have become household names, including Maggie noodles, Nescafé, Nestlé milk, KitKat, Munch, Milkmaid and Nescafé Sunshine. The company is doing extremely well and prospects ahead are all the more highly promising.

Consider:

• The company’s products are rated very high in quality. Little wonder that even during the last 15 months of the pandemic, its products have been meeting with very good demand, leading to double digit growth in several key products. In fact, the pandemic has pushed up the demand for the company’s products. The second Covid wave has led to localised lockdowns, which in turn will help the company achieve better growth at a time when consumers are shifting to trusted brands.
• The company has a strong presence across India, with manufacturing facilities located at Moga in Punjab, Choladi in Tamil Nadu, Samalkha in Haryana, Nanjangud in Karnataka, Ponda and Bicholim in Goa, and Pantnagar in Uttarakhand. It also has four branch offices in the four metros – Mumbai, Delhi, Chennai and Kolkata — to help facilitate the sales and marketing of its products. With its facilities spread all over the country, the company has adopted a cluster-based distribution strategy by remapping India into 15 clusters, apart from decentralisation which has empowered the factories and sales locations in decision-making.
• At present the company is concentrating on the urban sector for pushing up its pace of growth, with the sector accounting for around 75 per cent of revenues. Now, the management has decided to penetrate the rural sector – which contributes only 25 per cent to revenues — in order to quicken the pace of growth. During the last 18 months, the company has doubled its reach from 45,000 villages to 90,000. Realising that there are tremendous growth prospects in the rural sector on account of rising incomes and expanding expectations, the company has decided to reach 1,20,000 villages by 2024.
• Known for its innovation and premiumisation of its products, the company is continuously launching new products. During the last two years, it has launched as many as 60 new products with a 70 per cent success rate. In view of its rural penetration drive, the company is keen to launch products like upma, poha and breakfast cereals. The company is on the verge of launching 40 new products but is not in hurry to introduce them immediately on account of the pandemic. The new products are expected to sustain the pace of growth of the company.
• In most of its key products, the company enjoys a dominant position in the market despite growing competition. The popular Maggie noodles segment was hard hit during the crisis in 2015, when the company literally lost its total marketshare. But thanks to the high quality and remarkable taste of the Nestlé product, coupled with the imaginative and effective steps taken by Managing Director Suresh Narayanan, the company has succeeded in recovering lost ground during the last six years and today enjoys a hefty 60 per cent marketshare, despite frantic efforts by Hind Unilever, Patanjali, ITC and Marico. Though ITC has succeeded in capturing the second position, the others are nowhere in the race today. Nestlé has won the battle thanks to the taste of the product, advertising campaigns, differentiation and its distribution reach.
• The company has joined the new distribution avenue of e-commerce. With 70 per cent of its portfolio being urban, Nestlé is well-placed to capture the e-commerce boom, resumption in modern trade and out-of-home consumption. The company is looking at the opportunity to close the gap with a few other FMCG players for whom e-commerce makes up 5 to 6 per cent of sales, through the introduction of digital-only products, a focus on digital marketing and meeting new consumption needs. In fact, it is believed that the company’s portfolio is among the most suited to e-commerce. The current lockdown and the resultant work-from-home culture is expected to boost consumption of Nestlé’s offerings, especially cooking aids, noodles, pasta, coffee, sauces and milk products.
• The company is going from strength to strength on the financial front. During the last five years, its revenues have expanded from Rs 9,224 crore in calendar year 2016 to Rs 13,350 crore in 2020, with the profit at the net level taking a huge jump from Rs 926.54 crore to Rs 2082.43 crore during the same period. The company’s financial position is very strong, with reserves at the end of December 2020 standing at Rs 1,923 crore against an equity capital of Rs 96.42 crore, that too after four bonus issues (3:5 in 1983, 1:1 in 1986, 3:5 in 1989, 1:4 in 1993 and 1:2 in 1996). The company has been paying hefty dividends, the rate for the last year being 900 per cent.

The company has started the new year (2021) on a buoyant note. With sales turnover registering a 10.7 per cent growth in Q1 CY2021 at Rs 3,111 crore, the company has earned a 13.1 per cent higher net profit at Rs 603 crore. We expect an EPS of Rs 325 for the full year. The stock is now quoted around Rs 16,538.

PERFORMANCE INDICATORS (Rs. in crore)