Fundamental Analysis of Nestle India: FMCG products are essential for our daily needs. They have a short shelf life, are produced in high volumes with low cost, and are made for rapid consumption. This sector is India’s fourth-largest and has created jobs for over three million people.
One such stock in this sector is Nestle India whose products might have also created nostalgic memories for you. In this article, we will conduct a Fundamental Analysis of Nestle India and try to analyze the future potential of the company.
Table of Contents
Fundamental Analysis of Nestle India
We’ll begin our Fundamental Analysis of Nestle India by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of future plans and a summary.
Company Description
Nestle’s history with India dates back to 1912 when it first started trading as The NESTLÉ Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market.
The company set up its first factory in 1961 after the emphasis of the Indian Government on local production. Over the years, it has expanded its operations by setting up more factories and diversifying its product portfolio.
Currently, the company has 9 manufacturing units and 4 branch offices with a workforce of over 8000 employees.
Furthermore, the operations of the Company in India have contributed to the creation of employment opportunities for approximately one million individuals, both directly and indirectly. This includes employment opportunities for farmers, suppliers of packaging materials, as well as providers of other goods and services.
Product Offerings
Nestle India has a diverse product offering under various segments including Milk Products and Nutrition, Prepared Dishes and Cooking Aids, beverages, confectionary and Out-of-Home Business.
Over the last 7 years, the company has launched 110 new products and currently has 30 new projects in the pipeline.
Furthermore, the company has recently acquired the f Pet Food business from Purina Petcare India Pvt. Ltd through slump sales and has made an entry in the potentially high-growth pet food category.
Some of the most popular brands of the company in India, include Nescafé, Maggi, Kit Kat, Milkybar, Bar-One, Milkmaid and Nestea. The company has also introduced products of daily consumption and use such as Nestlé Milk, Nestlé SLIM Milk, Nestlé Jeera Raita and Nestlé Dahi.
The following Image will give you the domestic revenue contribution of the company from different segments, as of October 2023:
Geographic Presence
As of October 2023, the company has more than 2,000 distributors spread across 14 states covering 7,405 towns. The following image shows you the domestic sales growth of Nestle India for 10 years:
Industry Overview
The FMCG sector in India has experienced significant expansion due to consumer-driven growth and higher product prices for essential goods, making it the fourth-largest sector in the country.
According to estimates, the sector’s sales are expected to grow at a rate of 7-9% during 2022-23. This growth is driven by factors such as the rising youth population, increasing disposable incomes, and growing consumer awareness.
While the urban sector is the largest contributor to the overall revenue generated by the FMCG sector, the markets for this industry have grown at a faster pace in the rural sector over the past few years.
As of December 2022, the FMCG market has reached a total of US$ 56.8 billion, and from 2021-2027, the total revenue of the FMCG market is estimated to grow at a CAGR of 27.9%, reaching nearly US$ 615.87 billion.
Fundamental Analysis Of Nestle India
The company operates on a calendar year basis, meaning it starts its financial year on the 1st of January and concludes on the 31st of December annually. We will now conduct a Fundamental Analysis of Nestle India by using the reports given by the company.
Revenue and Net Profit Growth
The financial statement of the company indicates that the revenue of the company has increased from ₹11,216 Crores to ₹16,789 Crores from FY18 to FY22 respectively. This gives the company a 4-year CAGR of 10.61% on its revenue.
Along with the revenues, the net profits of the company have also increased from ₹1,606 Crores to ₹2,390 Crores. This gives the company a CAGR of 10.45% on its net profit during the last five financial years.
Note: The figures for FY21 and FY22 have been restated to include the financials of the acquired Pet Food Business as per requirements of Ind AS 103.
| Year | Revenue (Rs in Crores) | Profit after tax (Rs in Crores) |
|---|---|---|
| 2018 | 11,216 | 1,606 |
| 2019 | 12,295 | 1,968 |
| 2020 | 13,290 | 2,082 |
| 2021 | 14,664 | 2,118 |
| 2022 | 16,789 | 2,390 |
| 5 Year CAGR Growth | 10.61% | 10.45% |
Let us now analyze the margins of the company and find out if the margins of the company have increased similarly to its revenues and profits.
Margin Analysis
During the last five financial years, the company has maintained a steady operating margin which has ranged from 20% to 22%.
Similarly, the net profit margins of the company were also steady floating between the range of 14% to 16%.
Steady margins over the years despite the increase in revenues and profits suggest that the company has managed to keep its expenditure under control.
| Year | Operating Profit Margin | Net Profit Margin |
|---|---|---|
| 2018 | 21% | 14.30% |
| 2019 | 21.10% | 16.00% |
| 2020 | 21.70% | 15.70% |
| 2021 | 22% | 14.40% |
| 2022 | 20% | 14.20% |
Return Ratios: RoCE and RoE
The company’s return ratios also indicate an optimistic outlook on the company’s performance.
Both the RoE AND RoCE of the company have increased over the past 5 years including the year of Covid-19
The company reported a RoE and a RoCE of 108.52% and 152.61%, respectively, during FY22. The aforementioned ratios demonstrate that the company has provided favorable returns to its shareholders and has utilized its resources efficiently.
| Year | ROE (%) | RoCE (%) |
|---|---|---|
| 2018 | 45% | 70.93% |
| 2019 | 70.39% | 98.67% |
| 2020 | 105.76% | 147.88% |
| 2021 | 107% | 151.64% |
| 2022 | 109% | 152.61% |
Debt & Interest Coverage Ratio
Looking at the company’s leverage status, we can observe that it has maintained a debt-to-ratio of less than 0.03 for the past five years. This indicates that the company is operating with minimum financial pressure as it is relying less on borrowed capital for financing its business activities and growth.
This also means that the company is able to retain more of its revenue because it does not have a huge obligation to repay debt and interest.
Due to its low debt, the company has consistently maintained a healthy interest coverage ratio, with a reported ratio of 22.06 for FY23. This implies that the company was able to generate sufficient gross profits to cover its interest expenses 22 times.
This also implies that the company has the capability to acquire extra funds, which it can use to expand and advance its business activities.
| Year | Debt to Equity (x) | Interest Coverage Ratios (X) |
|---|---|---|
| 2018 | 0.01 | 22.7 |
| 2019 | 0.03 | 21.71 |
| 2020 | 0.02 | 18.13 |
| 2021 | 0.02 | 15.17 |
| 2022 | 0.01 | 22.06 |
Future Plans of Nestle India
So far we looked at the previous fiscals’ data for our Fundamental Analysis of Nestle India. In this section, we’ll try to make sense of what lies ahead for the company and its investors.
- The company has been increasing its market size by focusing on strengthening its reach in small towns and large villages under its RURBAN strategy. It has also continued to widen and customize our RURBAN portfolio by introducing products which cater to specific local requirements
- The company is piloting NESmitra, its customer ordering app in RURBAN markets, that will help retailers connect with the distributors.
- The company has accelerated its focus on Innovating and renovating, launching many new products through the years. Currently, it has 30 new projects in the pipeline.
- The company is working on developing a diverse range of food products across multiple brands that highlight millet or ‘shree anna’ as a more eco-friendly and sustainable food option.
- The company has doubled its spending on sustainability in sectors such as dairy, plastics, and sustainable sourcing.
Key Metrics
We are almost at the end of our Fundamental Analysis Of Nestle India. Let’s take a quick glance at the stock’s important metrics.
| Particulars | Figures | Particulars | Figures |
|---|---|---|---|
| CMP | 24,190.95 | Market Cap (Cr.) | 2,34,981 |
| EPS | 308.16 | Stock P/E | 76.48 |
| RoCE (%) | 152.61% | RoE(%) | 108.52% |
| Promoters Holding | 62.76% | Current Ratio | 1.13 |
| Debt to Equity | 0.01 | Price to Book Value | 60.36 |
| Net Profit Margin(%) | 14.20% | Operating Profit Margin(%) | 20% |
Fundamental Analysis of Nestle India – Stock Split
Since its listing, the stock price of Nestle India has risen by a staggering 865%, and as of November 20, 2023, it is trading at a price of Rs. 24,190.95. This makes it one of the most expensive stocks in India.
However, there is good news for investors, as the board of directors of the company have approved a stock split for the first time ever during their meeting on October 19, 2023.
The company has announced a stock split in the ratio of 1:10. This means that for every equity share an investor holds with a face value of ₹10, it will be subdivided into 10 equity shares with a face value of Re 1 each. This move will increase the number of shares outstanding but will not affect the total value of the investor’s holdings in the company.
This decision of stock split will lead to a significant decrease in the share price, making it more accessible for retail investors. This move is aimed at improving market liquidity by increasing trading volume, which could potentially benefit both the investors and the company.
In Closing
We have reached the end of the Fundamental Analysis of Nestle India. Through this article, we can conclude that with various factors like the company’s effort to expand its reach, and product portfolio, the stock has a good potential for growth in the future.
However, it is our duty as investors to keep track of the company’s earnings to see if it is increasing or maintaining its margins and if the company’s performance is better than its industry peers.
With the company rolling out with a stock split, do you think the stocks of Nestle India will become an attractive investment? Do share your thoughts in the comments below.
Written By Aaron Vas
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