Nestle India - Nutrition, Health And Wellness Mantra To Sweeten Deal; Visit Note :: Edelweiss

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

We recently met the Nestle management. Though the company does not give future guidance, we were enthused by management’s confidence, which had plummeted in the past 2 years. Better macros, QoQ improvement in performance in CY14, cooling raw material prices and encouraging response to new launches are spurring this confidence. The company’s focus on nutrition, health and wellness positioning is bound to revive growth and margins. In our view, ITC can potentially be a formidable competitor in coffee and milk due to its sound track record of new launches in foods.

Demand, margin: Worst likely behind (our view)

Nestle’s per capita consumption in India is lower compared to even Nepal, Bhutan and Sri Lanka. The company has one of the highest percent of sales from urban India and, hence, is bound to benefit from the much anticipated recovery. Many foreign players like Danone, Abott and Mead Johnson have entered the domestic infant nutrition market. However, unmatched distribution and strong relationships with doctors impart Nestle an upper hand in the segment. Prices of milk (key raw material) soared 22% YoY in 9mCY14 and impacted margin. However, 4% and 18% cooling off of milk and MSK prices, respectively, post Q3CY14 is encouraging.

Chocolates, coffee leave bitter taste; renovation key

The company is more focused on renovation than innovation as its current portfolio has ample headroom. Nestle chocolates and beverages registered a sharp volume decline of 11.5% YoY and 7.5% YoY, respectively, in 9mCY14. Marketing issues in Munch and portfolio rationalisation took a toll on chocolates. Coffee business suffered due to significant competition in the out-of-home (vending machines) business.

LINK

https://www.edelweiss.in/research/Nestle-India--Nutrition,-Health-And-Wellness-Mantra-To-Sweeten-Deal;-Visit-Note/27647.html