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Motilal Oswal
Nestle (Neutral)
Target: ₹17,500
CMP: ₹16,288.20
Milk & Nutrition and Chocolates & Confectionary continued their healthy growth momentum seen in recent years. Though the 11.4 per cent growth in prepared dishes (Maggi) in CY20 was healthy, it was lower than our earlier estimate due to in-home consumption getting a boost during Covid. Performance was likely affected by a slower resumption in manufacturing as Nestlé does not outsource production. Beverage sales were flattish in CY20 due to significant out of home (OOH) component, which is only now normalising.
Contribution of newer products to sales remained healthy at 4.3 per cent in CY20, which is creditable because the management’s focus was more on core products amid the pandemic. With 40-50 products under development, the launch pipeline is likely to be strong again going forward.
The management underlined the increasing opportunity from rural India. From 7,000 villages in CY16, Nestle is now present in 89,000 villages. The management is targeting 120,000 villages by CY24. At 25 per cent, share of rural in Nestlé India’s sales is lower than peers. The management also provided additional details on the ₹2,600 crore capex plan to be spread over 3-4 years. Capacity expansion in Maggi Noodles in Sanand will be part of the first phase in CY21, followed by Coffee in Nanjungud and Chocolate investment in Ponda and Tahliwal. Since the expansion will be in phases, it does not expect any significant impact of the capex on operating margin.
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