Bars of original KitKat chocolate, produced by Nestle SA (Photographer: Jason Adlen/Bloomberg)

Nestle India Expects To Maintain Growth Momentum This Year

Nestle India Ltd. expects to build on the momentum after it clocked a double-digit volume growth, riding on its mainstay Maggi noodles.

The maker of Kit Kat chocolate is also seeing a slow revival in consumption with the urban market being more resilient compared to rural India, according to its annual report for 2017.

Nestle India reported a sales growth of 11.8 percent in 2017 (after adjusting for Goods and Services Tax) on the back of increased volumes, especially in the Maggi brand, it said in its annual report for 2017. Its volumes rose 11 percent. That, according to a Credit Suisse report, is the highest growth in calendar year 2017 for any consumer goods maker.

2018 is going to be about bringing consumers closer by being responsible, transparent and focusing on sustaining long-term relationships that add value. The industry is evolving at a tremendous pace and we would like to ride the tide and be ahead of the curve.
Suresh Narayanan, Chairman & Managing Director, Nestle India

Here are the key takeaways from the annual report:

  • The industry is evolving at a tremendous pace and Nestle would like to stay ahead of the curve.
  • Sales growth for 2017 was 11.8 percent (GST adjusted) due to increase in volumes, especially those of Maggi.
  • Volumes of Maggi’s core category noodles rose in double digits in 2017.
  • Volume growth of around 11 percent in 2017 on a blended portfolio basis.
  • Growth in 2017 was mainly on account of volume growth and not price growth.
  • Slow revival of consumption with the urban market being more resilient compared to rural India.
  • Fortifying many of mass consumption products with micronutrients to counter under-nutrition, specially among lower income consumers.
  • Making in roads into newer geographies like the Caribbean Islands, European Union and Sri Lanka.
  • Continue to strengthen confectionery portfolio with core brands of Kitkat, Munch, Bar One and Milky Bar.
  • Beverages grew around 11 percent in volumes while chocolates grew 4 percent in volumes.
  • Milk and nutrition see volume growth after five years.
  • Cash balance increases to Rs 1,448 crore in December 2017 from Rs 869 crore in the previous year.

Brokerage View

Credit Suisse increased the target price for Nestle India to Rs 9,600 from Rs 9,000 on the conviction of a turnaround after seven years of flat volumes. The brokerage factored in details of the annual report while raising its target.

Nestle had a very high capex phase from CY11-13 and after that volumes declined. Thus, the capacity utilisation is relatively low, and there is no need for capex to support this phase of growth.
Credit Suisse Note On Nestle

Also Read: Analysts Most Bullish On Nestle India In Nine Years

Shares of Nestle India are trading at a record, up 75 percent from the lows after the 2015 controversy over excess monosodium glutamate in its Maggi noodles. It trades at 48 times its earnings for the financial year 2018-19 basis—making it the third-most expensive large cap consumer stock behind Britannia Industries Ltd. and Hindustan Unilever Ltd.

As high as 23 out of the 32 analysts actively tracking Nestle have a positive recommendation, while three recommend selling the stock, according to Bloomberg data. There is a potential downside of 4 percent on the stock.

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