Nestle India Ltd. share price target

Growth momentum in domestic business remains robust Nestl India (NIL) continued to maintain its growth momentum during the quarter with strong YoY double digit growth of 10.5% in domestic business backed by aggressive new launches. The company has increased the pace of innovations (61 launches since 2016) out of which 40-45 have been successful, resulting in ~70% successful innovations with only 10% of total being product withdrawals. Contribution to sales from new launches has grown from 1.5% to 3.7% over the last three years. We believe aggressive...

a couple of years back. Milo is the largest MFD brand globally with sales exceeding USD2.5bn. Milo is the Global leader in malt-based drinks with over 36 million serves consumed daily in more than 50 countries. Milo mainly competes in the chocolate segment which has presence of players like Chocolate Horlicks, Bournvita, Boost and Complan. We believe that the launch is well timed given that Glaxo Consumer is in the process of being acquired by HUL and Complan is in integration process post...

Nestle's growth story is based on 4 growth pillars of 1) harnessing its cluster based strategy to go deeper and increase sales in interiors 2) increasing innovation and renovation 3) leveraging e-commerce and 4) exploiting the OOH opportunity. Nestle has 70% success rate in new launches in past 3 years (3.7% of sales) and posted double digit volume growth in tough environment, however sustaining the same seems a daunting task as 1) Maggi, although reached all-time high sales, its market share at 59.6% is far lower than 75%+ in pre-crisis level and value added variants have limited...

NIL has achieved market leadership in 85% of portfolio. It continues to enjoy leadership position in instant noodles, & pasta, infant cereals, infant formula, tea creamer, white & wafers chocolates and instant coffee...

The company has launched 61 products over the past three years with a remarkable success rate of 70% (v/s industry's success rate of 10%-15% for new launches). These products now contribute ~3.7% of sales. Notably, the timeline for new product...

Well-carved out plans to increase distribution network Out of around 9 million outlets in India, NIL had a distribution network of 5 million outlets three years ago. However, during the Maggi ban crisis, the company's distribution network reduced to around 3.5 million outlets. From there on, it has been a very strong rebound for Maggi noodles. It went on to regain leadership position in the category. Consequently, NIL as on today has access to around 4 million outlets of which the direct reach is around 1.3 million outlets or 33%. NIL has adopted a hyper-local model for...

We value the stock at a P/E of 50x on CY20E EPS and maintain Hold rating with a revised target price of Rs 11,400. However, higher advertisement spends are expected to keep margins under pressure in the interim. Moreover, a below normal monsoon this year could further dampen demand scenario. Domestic sales driven by higher volumes Revenue for Q1CY19 grew by 9%YoY to Rs3,003cr led by growth of 10% YoY in the domestic business. Domestic sales increased 10%YoY to Rs2,822cr on the...

Increased distribution and A&P; spend to drive revenues Volume growth in CY18 was 11.1% YoY, led by strong growth in confectionary at 15% YoY, beverages at 11% YoY and prepared dishes at 14% YoY. Milk products posted 4.8% YoY volume growth. Given aggressive A&P; done by the company behind new launches, we expect 11.5% CAGR volume growth in CY18-20E led by prepared food and chocolate segments. Kit Kat, Milkmaid and Nescafe have been relaunched while more brands are likely to be remodelled, pushing volume growth upwards. A further fillip to...

Reported net sales grew 8.9% YoY to INR30b (our estimate: INR31.7b) in 1QCY19. Domestic sales increased 10.2%, while exports fell 8.9% due to lower coffee exports to Turkey. EBITDA grew 5.3% YoY to INR7.5b (our estimate: INR7.4b). Adj. PAT was up 8.2% YoY to INR4.8b (our estimate: INR4.6b). Gross margin shrank 60bp YoY to 58.5% due to higher commodity cost. EBITDA margin, too, contracted by 90bp YoY to 25% owing to higher staff costs...

We are cutting CY19 and CY20 EPS estimates of Nestle by 0.4% and 3.6% due as we believe that input costs led margin tailwinds are over. We now factor in120bps decline in gross margins in CY19 and 30bps in CY20. Nestl's 1QCY19 nos show 10.2% domestic sales growth (12% in 4Q18) in a challenging operating environment, showing success of new launches and volume focused strategy. We believe success of new launches and sustained innovation pipeline holds key to growth sustenance. We expect medium term levers to play out led by 1) improved demand growth...