Pls read, I have written it’s a mature company and cant be expected to give returns like multibaggers and its providing returns much better than its mature peers
I have never stated predictions in my revert above
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Nestle Express…
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Suresh Narayanan Of Nestlé : We’re Focussing On Nutrition, Immunity, Value-addition & Affordability
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Initiating Coverage Report by Axis Securities
Axis Securities _ IC _ 05.08.20.pdf (1.2 MB)
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Hi
Nestle results came out yesterday. And I think they were quite good. PFA
Nestle Q2FY21.pdf (337.3 KB)
Some highlights
- The Q2 FY21 quarter Nestle posted a top line of 3,350 Crs
- This is the highest quarterly top line in the company’s growth (I have data till 2011)
- Growth of 10.2% YoY
- The Operating Margin remained at a peak of 25%
- Interim dividend of 135 per share
- Factories have returned to normal output
- Plan to invest 2600 Crore over the next 3-4 years to augment existing manufacturing capacities, as well as towards the under construction ‘state of the art’ factory in Sanand, Gujarat.
- Increase in in‐home consumption in brands like MAGGI Noodles, MAGGI Sauces, KITKAT, Nestlé MUNCH, NESCAFÉ CLASSIC & NESCAFÉ SUNRISE witnessed double digit growth
- Demand in ‘Out of Home’ channels improved during the quarter but continues to be impacted due to the overall environment
- Strong performance in the e‐commerce channels, which grew by 97% and now contributes about 4% of domestic sales.
- The PAT for the quarter was below Sep 2019 because the tax Expense for the quarter ended 30 September 2020 is not comparable. The cumulative effect of lower tax rate made applicable from 1 April 2019 was adjusted fully in quarter ended 30 September 2019. Earnings per share is also not comparable for the same reason.
Regards
Deepak
Disc: Invested
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Nestle has consistently generated circa 70% ROCE. It would be safe to assume that they would generate similar returns from the additional 2600 crores of Capex. This sum appears more in absolute value than the capex of last 4 years combined? If so, this seems like a no brainer.
In developed markets Nestle doesn’t generate such high returns, doesn’t grow topline as fast and understandably doesn’t do such high Capex investments (relative to the BS size).
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Management has shared a detailed presentation regarding their business, it is attached below for your reference.
Nestle management presentation
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Nestle India-Results Dec 2020.pdf (523.3 KB)
Nestle India Webcast:
Investor Presentation:
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I want to ask a question from long time Nestle investors (you lucky guys).
I’ve heard the argument a number of times that Nestle deserves a premium since it has almost no competition in infant formula market.
I doubt that the argument may have been valid in an earlier environment. Given the increasing role of ecommerce and new entrants in food businees, what would stop TATAs from launching their own infant formula and putting it on top of search results in Big basket. Or a new entrant spending of increasing ranks of its infant formula in google search. And it’s not that competition isn’t present. There Similac (Abbot), Enfanil (Mead Johnson), Amulspray and many new launches.
I think how governments are responding to facebook and google regarding news revenue is a lesson that no moat is permanent and if a business becomes too profitable, capitalism dictates that the attacks on the moats of that business would become more fierce.
Also, I was surprised to note that Nestle sells its ghee at a discount to a number of other players. Nestle ghee sells at around 470 on Amazon, while Patanjali and ITC Svast at around 550.
Your thoughts.
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Nestle has a monopoly in infant formula, no other new company can introduce a product, they need to get permission from WHO. WHO doesn’t allow advertising of these products and these products are prescribed by doctor and are mostly available in pharmacy outlets. Pharmacy keeps these products also because they get good margins.
As no. of working women increases , family size becomes nuclear , the affordability of the parents increases to provide quality infant powder and doctors mostly advise Nestle. Hence, nestle has monopoly and stability of earnings with consistency over a long period of times results in high valuations.
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What can stop Tata get WHO permission if and when they target to get it? They may not advertise it once they get permission, but shelf space and distribution is an equal moat.
I think answer lies in your question. There are already too many credible global players who have not been able to dent Nestle’s market.
So Tata consumer’s ability to dent that market is definitely very difficult. Tata consumer is a low-value add FMCG company, dominant is raw food, tea,spices and salt. Infant food is other extreme, needs specialized processed food capabilities.
As, far as Nestle ghee is concerned, it is by-product of their milk food biz and not a strategic offering.
Liks Zydus wellness Ghee, Sampriti which is by-product of Complan processing. They don’t even mention on their website.
Tata wont get permission from WHO because according to WHO mothers milk is the best, rules and regulations have changed so no company can get permission and thats where the moat lies
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Completely agree and no denying that but in many cases due to changing lifestyle, mother may not get enough milk and in such cases an infant milk powder is a life saver…if as a novice in healthcare I am aware of such cases then I am sure many would be aware on practical reason for infant powder for such cases extremely useful…i am thinking why would WHO not give permission considering this reason and also that already commercial players exist…
Can you share source where such a ruling about WHO decision is mentioned? Thanks
With all due respect to Nestle, Tata consumer is not at all a low value add company. Currently it’s products maybe low margin as compared to Nestle, which would surely change going ahead, but the value they have created out of basic commodities and staples is commendable. I see them as huge value add FMCG company which in due course will increase higher margin products as well.
Disc. Invested in both Tata consumer and Nestle and hence biased. Not a buy/sell recommendation.
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