Nestle India

Table of Contents
Rpt. 17518977 27-Apr-2011
NESTLE INDIA LTD NOMURA INTERNATIONAL (HONG KONG) LTD. - JAIN, MANISH, ET AL
2 - 14
Rpt. 17573361 18-Apr-2011
NESTLE INDIA LTD ICD RESEARCH - COMPANY SWOT - RESEARCH DEPARTMENT
15 - 38
These reports were compiled using a product of Thomson Reuters
www.thomsonreuters.com
Nestle India
FOOD & BEVERAGE
NEST.BO NEST IN
EQUITY RESEARCH
Strong start to a likely steady year
April 27, 2011 Rating Remains Target price Increased from 3525 Closing price April 27, 2011 Potential downside
Attractive long-term play; however, valuations cap the near-term upside

Action: Valuations reflect fair value; reaffirm NEUTRAL The company has demonstrated a strong start to CY11; however, the stock appears fairly valued, in our view. We continue to believe that Nestle remains one of the best plays on the emerging food opportunity in India from a long-term perspective. Catalyst: Rising input prices offset by strong price/mix benefit Rising input prices are near-term negative catalysts for Nestle. A&P spend could rise in the near term as competition remains strong. However, the company should reap benefits from a strong price/mix as demonstrated by its 1Q CY11 results, which should help mitigate the impact on margins, in our view. Steady earnings momentum likely We expect the company to deliver 22% revenue growth and a steady 50bp margin improvement, leading to 22.5% EPS growth for the year. Target price higher on account of roll forward The net impact of the above changes is largely neutral, with our earnings estimates cut by 1-2% over CY11F and CY12F. Our price target moves higher to Rs3,800 on account of the roll-forward by one quarter. Valuation: Look for a better entry point We view Nestle as a solid long-term story, but current valuations at 30.3x CY12F imply we would look for a better entry point into the stock. Longer term, we continue to prefer food names vs HPC in the consumer space.
Neutral
INR 3800 INR 3945 -3.7%
Anchor themes In the long term, we prefer food names in the consumer sector vs. HPC names. We see the food subsector growing faster led by lower penetration levels and increased consumption. Nomura vs consensus We are largely in line with consensus on CY12 earnings but are ahead of consensus on CY13. We believe Nestle will deliver >20% earnings growth each year over the next three years.
Research analysts
India Consumer Related Manish Jain - NFASL manish.jain@nomura.com +91 22 4037 4186 Anup Sudhendranath - NFASL anup.sudhendranath@nomura.com +91 22 4037 5406
31 Dec Currency (INR)
FY10 Actual Old
FY11F New Old
FY12F New
FY13F New
Revenue (mn) 62,547 Reported net profit (mn) 8,187 Normalised net profit (mn) 8,371 Normalised EPS 86.8 Norm. EPS growth (%) 20.0 Norm. P/E (x) 45.4 EV/EBITDA 29.8 Price/book (x) 44.5 Dividend yield (%) 1.4 ROE (%) 114.0 Net debt/equity (%) net
72,309 10,409 10,409 108.0 26.3 N/A N/A N/A N/A 116.9
76,380 10,256 10,256 106.4 22.5 37.1 23.8 28.5 1.4 93.7
85,937 12,587 12,587 130.5 20.9 N/A N/A N/A N/A 109.0
93,521 112,199 12,563 12,563 130.3 22.5 30.3 19.2 19.5 1.7 76.4 15,306 15,306 158.8 21.8 24.9 15.8 13.9 2.0 65.2
cash net cash net cash net cash net cash net cash
See Appendix A-1 for analyst certification and important disclosures. Analysts employed by non US affiliates are not registered or qualified as research analysts with FINRA in the US.
Key company data: See page 2 for company data, and detailed price/index chart. Rating: See report end for details of Nomuras rating system.
Nomura | ASIA Nestle India
April 27, 2011
Key data on Nestle India

Incomestatement(INRmn)
Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A -10,550 Employee share expense -4,324 Operating profit EBITDA Depreciation -1,113 Amortisation EBIT 9,438 Net interest expense -14 Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends -5,471 Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) 54.5 FD normalised P/E at price target (x) 52.5 Reported P/E (x) 58.1 Dividend yield (%) 1.4 Price/cashflow (x) 42.8 Price/book (x) 65.4 EV/EBITDA (x) 35.9 EV/EBIT (x) 40.1 Gross margin (%) 47.4 EBITDA margin (%) 20.6 EBIT margin (%) 18.4 Net margin (%) 12.8 Effective tax rate (%) 27.3 Dividend payout (%) 83.5 Capex to sales (%) 4.0 Capex to depreciation (x) 1.9 ROE (%) 124.2 ROA (pretax %) 55.8 Growth (%) Revenue 18.6 EBITDA 19.9 EBIT 19.9 Normalised EPS Normalised FDEPS Per share Reported EPS (INR) 67.93 Norm EPS (INR) 72.35 Fully diluted norm EPS (INR) 72.35 Book value per share (INR) 60.29 DPS (INR) 56.74
Source: Nomura estimates
FY09 51,294 -26,982 24,312 FY10 62,547 -33,953 28,594 -12,851 -4,334 11,409 12,686 -1,278 11,409 -11 172 9,596 -2,620 6,976 238 11,636 -3,264 8,371 FY11F 76,380 -41,588 34,792 -15,356 -5,106 14,330 15,908 -1,578 14,330 -30 351 14,651 -4,395 10,256 FY12F 93,521 -51,121 42,400 -18,756 -6,036 17,607 19,703 -2,096 17,607 0 340 17,947 -5,384 12,563 FY13F 112,199 -61,328 50,871 -22,540 -7,114 21,216 23,827 -2,610 21,216 0 650 21,866 -6,560 15,306 Notes
Strong revenue growth helped by volumes, pricing and mix improvement
9,438 10,550
6,976 -426 6,549 1,079
8,371 -185 8,187 -5,448 2,738
10,256 0 10,256 -5,462 4,794
12,563 0 12,563 -6,363 6,199
15,306 0 15,306 -7,424 7,882
45.4 43.8 46.5 1.4 35.4 44.5 29.8 33.1 45.7 20.3 18.2 13.1 28.1 66.5 7.7 3.8 114.0 54.5
37.1 35.7 37.1 1.4 33.1 28.5 23.8 26.4 45.6 20.8 18.8 13.4 30.0 53.3 9.3 4.5 93.7 53.7
30.3 29.2 30.3 1.7 25.8 19.5 19.2 21.5 45.3 21.1 18.8 13.4 30.0 50.7 8.1 3.6 76.4 51.5
24.9 23.9 24.9 2.0 23.0 13.9 15.8 17.7 45.3 21.2 18.9 13.6 30.0 48.5 6.3 2.7 65.2 51.2
Priceandpricerelativechart(oneyear)
(INR) 4200 4000 3800 3600 3400 3200 3000 2800 2600 J un 10 A ug 10 S ep 10 D e c 10 Feb 11 J an 11 J u l 10 N o v 10 M a y 10 O c t 10 M a r 11 A p r 11 Price Rel MSCI India 140 130 120 110 100 90
21.9 20.2 20.9 22.9 20.0 22.9 20.0
22.1 25.4 25.6 22.5 22.5
22.4 23.9 22.9 22.5 22.5
20.0 20.9 20.5 21.8 21.8
(%) Absolute (INR) Absolute (USD) Relative to index Market cap (USDmn)
1M 6.9 7.5 3.9 8,558.7
3M 11.2 13.9 7.5
12M 41.2 41.2 35.1
84.91 86.83 86.83 88.72 56.51
106.37 106.37 106.37 138.44 56.65
130.30 130.30 130.30 202.74 66.00
158.75 158.75 158.75 284.48 77.00
Estimated free float 38.0 (%) 52-week range (INR) 4224/2570 3-mth avg daily turnover (USDmn) Major shareholders (%) Nestle LIC of India 3.16
62.8 2.7
April 27, 2011
Cashflow(INRmn)
Year-end 31 Dec EBITDA 10,550 Change in working capital 1,417 Other operating cashflow Cashflow from operations Capital expenditure -2,064 Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity ssue i Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
FY09 FY10 12,686 1,575 -3,523 10,739 -4,832 5,907 526 0 13 6,445 -5,448 0 0 0 -5,448 997 1,556 2,553 -2,553 FY11F 15,908 -345 -4,074 11,489 -7,086 4,403 0 0 0 4,403 -5,462 0 750 0 -4,712 -309 2,553 2,244 -1,494 FY12F 19,703 105 -5,044 14,764 -7,600 7,164 0 0 0 7,164 -6,363 0 -750 0 -7,113 50 2,244 2,295 -2,294 FY13F 23,827 -1,405 -5,910 16,512 -7,075 9,437 0 0 -88 9,348 -7,424 Notes
-3,073 8,894 6,830 -1,684 0 -49 5,098 -5,471 0 -8 0 -5,479 -381 1,937 1,556 -1,556
Strong free cash flow generation despite aggressive expansion plans
-7,424 1,924 2,294 4,219 -4,219
Balancesheet(INRmn)
As at 31 Dec Cash & equivalents 1,556 Marketable securities Accounts receivable Inventories 4,987 Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable 5,876 Other current liabilities 8,348 Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock 0 Common stock 964 Retained earnings 4,848 Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover 674.8 Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory 63.1 Days payable 74.0 Cash cycle -7.0
FY09 0 642
FY10 2,553 0 633 5,760
1,380 1,514 8,566 10,460 2,033 1,507 9,758 13,616
FY11F 2,244 0 773 7,041 1,920 11,978 1,507 19,125
FY12F 2,294 0 946 8,621 2,351 14,213 1,507 24,629
FY13F 4,219 0 1,135 10,343 2,821 18,518 1,507 29,093
Notes
Increased capital expenditure takes a toll on cash balances
0 20,356
0 25,583 7,617 9,079 16,696 0 333 17,029 0 0 964 7,590
0 32,609 9,387 8,791 18,178 750 333 19,261 0 0 964 12,384
0 40,349 11,495 8,974 20,469 0 333 20,801 0 0 964 18,583
0 49,118 13,791 7,653 21,444 0 245 21,688 0 0 964 26,466
14,224 0 320 14,544 0
5,813 20,356
8,554 25,583
13,348 32,609
19,548 40,349
27,430 49,118
0.60 0.63 1,061.8
0.66 477.7
0.69 na
0.86 na
net cash net cash
net cash net cash
net cash net cash
net cash net cash
net cash net cash
3.9
3.7 57.8 72.5 -11.0
3.4 56.2 74.6 -15.1
3.4 56.1 74.8 -15.3
3.4 56.4 75.2 -15.4
April 27, 2011
Minor tweaks to our earnings estimates

We have made minor adjustments to our earnings estimates, down 1.5% in CY11F and largely flat in CY12F. While changes at the PAT level are minor, the composition of earnings undergoes a significant change on account of: 1) relatively muted margin expectations; and 2) higher capex to fund expansion plans. Apart from the above-mentioned changes, we have marginally increased our estimated tax rate and have incorporated the audited CY10 numbers into our estimates. Some of the details are as follows: Incorporating audited CY10 numbers into our estimates: We have incorporated the audited and published CY10 numbers into our model. Audited results for CY10 were ~2% ahead of our earlier published estimates. This was largely on account of exceptional and one-off items. Increased capex numbers: We are now building in a significantly higher capex going into the next couple of years, based largely on the companys announced plans for brownfield capacity expansions. Consequently, our capex assumptions go up from Rs1.9bn both for CY11F and CY12F previously, to Rs 7bn and Rs7.6bn, respectively. Furthermore, higher depreciation also negatively impacts CY11F earnings. Margin expectations: We have also incorporated the recently announced 1Q CY11 numbers and guidance into our assumptions; hence, now have relatively muted margin expectations. While we were earlier building in a significant 130bp margin expansion in CY11F, followed by a 20bp decline in CY12F, we now see margin progression as being more muted by 50bps in CY11F. Introducing CY13F earnings We are also introducing CY13F earnings and are building in steady 20% revenue growth, driven largely by the continued strong performance of the domestic business. We expect earnings to register 22% growth in CY13 on the back of flattish operating margins. Our CY13F EPS estimate is Rs158.8. Increased capex implies a higher non-cash expense, but positive in the long term Nestle has begun executing the capex plans it highlighted at the end of last year. Execution is now in full swing at its plants across the country, which in our view will ensure that the company has enough capacity to meet demand for around the next 5-7 years. Of the US$450mn that the company plans to spend, we believe spending will be largely evenly phased out, with 30% coming in CY11F, 40% in CY12F and 30% in CY13F. The companys capex plans are aimed at increasing the capacity of its existing plants spread across its six locations. The company also plans to set up new greenfield capacity, details for which have not yet been disclosed. Once its plans are in place, we expect further capex increases over CY12 and CY13, to ensure that the company has enough capacity to enable it to meet demand in the medium term. While we do believe that these investments are a positive signal from a long-term demand perspective, it has a marginal negative impact on earnings on account of higher depreciation. Expansion of both greenfield and brownfield capacities Nestle has not disclosed the numbers on how much investment will go into greenfield projects, but noted that there will be significant addition. Capacity addition will be largely undertaken for products in segments such as prepared dishes, milk products and chocolates, where the company sees strong growth potential over the next few years. It will also invest to expand its existing plants. The total planned investments across its existing capacities will be ~Rs 20bn, according to the company.
April 27, 2011
Some of the planned investments across its existing plants are listed below: Ponda (Goa) Rs5bn Nanjangud (Karnataka) Rs4bn Samalkha (Haryana) Rs6.5bn Bicholim (Goa) Rs1.5bn 1Q CY11 results A strong start to the year The Q1 results showed a strong start to the year, with sales growth marginally ahead of our expectations, but the key surprise was gross margins. The company benefitted from a strong price / mix, which led to a 100bp y-y improvement in gross margins, in our view. However, this was despite an increase in commodity costs which was offset during the quarter by the benefit from price/mix. At the PAT line, results were 11% ahead of our estimates, which we have now incorporated into our numbers for CY11F. As we had highlighted before (Young and Hungry, February 21, 2011), food companies have better pricing power vs hygiene and personal care (HPC) companies, which gives them an advantage in a rising input cost scenario. This was demonstrated by Nestles 1Q CY11 results, which were helped by much stronger pricing and mix benefits than we had expected. Key highlights of the 1Q CY11 results Net sales rose +22.3% to Rs18.1bn vs. our expectation of Rs17.7bn. This can be attributed to strong volume growth as well as price/mix benefit. Export sales rose 10.2% for the quarter. Gross margin improved by 100bps y-y but was down 120bps q-q. Gross margin improvement can be attributed to positive channel and product mix. However, the company does indicate that pressure from commodity costs has offset the improvement in gross margin, and hence, it has a cautious outlook on input cost pressures for the rest of the year. EBITDA came in at Rs3.8bn.This was also helped by lower employee costs vs. our expectations. EBITDA margin for the quarter was 21.3%, an 80bp improvement y-y. Reported PAT was Rs2.5bn, with EPS coming in at Rs26.5 for the quarter.
Fig. 1: Nestle India - 1Q CY11 results highlights
Quarter Ended (Rs mn) Net Sales EBIDTA Other income PBIDT Depreciation Interest PBT Tax Adjusted PAT Extra ordinary income/ (exp.) Reported PAT No. of shares (mn) EBIDTA margins (%)
Source: Company data, Nomura research
Mar-11 Mar-10 YoY % Chg 22.3 18,100 14,798 3,853 3,040 26.7 128 91 39.6 3,981 3,132 27.1 327 310 5.6 1 6 3,653 2,816 29.7 1,027 845 21.5 2,626 1,971 33.3 (69) 48 2,557 2,019 26.7 96 96 21.3 20.5
16,710 3,298 139 3,437 358 1 3,078 861 2,217 (183) 2,034 96 19.7
Dec-10 QoQ % Chg 8.3 16.9 (8.3) 15.8 (8.6) 18.7 19.3 18.5 25.7
Our expectations for quarterly performance in CY11F We expect sales growth to be strong through the rest of the year as well as in line with the strong 1Q, helped by solid volume growth, strong pricing actions, as well as mix improvement. We see revenue growth at 22-23% for the rest of the year (2Q-4Q) on a
April 27, 2011
y-y basis, largely helped by the companys strong pricing action taken across its portfolio. We also see benefits from mix improvement seen in 1Q continuing through the rest of the year. However, input cost pressure remains high in the near term, which should hold back significant margin improvement over the next couple of quarters, in our view. We foresee flat margins y-y in 2Q CY11F and expect margins to improve by 50bp in 2H CY11F as input cost pressures begin to ease as the company expects costs to moderate in 2H CY11. In all, this implies that for the full-year CY11F, margins will likely improve by 50bps, which is lower than what was visible in 1Q. With input prices easing off significantly, we see margin risk on the upside from these levels.
Fig. 2: Quarterly expectations for Nestle India CY11
Q1 CY11A Sales Grow th (%) EBITDA EBITDA margins PAT Grow th (%)
Source: Company data, Nomura estimates
Q2 CY11F 17,954 22.4% 3,620 20.2% 2,352 16.7%
Q3 CY11F 20,098 22.7% 4,150 20.6% 2,709 25.0%
Q4 CY11F 20,530 22.9% 4,087 19.9% 2,651 19.6%
18,100 22.3% 3,853 21.3% 2,626 33.3%
Input cost pressures offset by strong pricing dynamics The company expects input costs will continue to be volatile in the short term, and hence, we think it is difficult to have clear visibility on how input prices will impact gross margins in the near term. However, the company does have the advantage of managing costs by way of supply-chain efficiencies and various sourcing benefits it gets from having preferred supply partners. In addition, we and the Street were surprised by the strong price/mix benefit seen by the company in 1Q CY11. The companys pricing actions have not been limited to the milk portfolio only, but have been extended to chocolates and dairy products as well. The company has, in the past, spoken about taking price increases in its prepared dishes portfolio as well, which should further help protect its gross margins, in our view.
Fig. 3: Nestle India raw material price index
125 120 115 110 105 100 2008

11% 2%
2009
2010
April 27, 2011
Fig. 4: Fresh milk price index

156 156 155 155 154 154 153 153 152 152 151 155.5 155.4
Fig. 5: MSK price index

145 140 135 130 125 120 115 110 105 100 140.9
154.9
152.5
152.6
105.4
109.2
113.3
119.0
Current
Q1CY10
Q2CY10
Q3CY10
Q1CY10
Q2CY10
Q3CY10
Q4CY10
Fig. 6: Green coffee price index

160 150 140 130 120 110 100 104.0 102.8 118.6 156.9
Fig. 7: Sugar price index

225 220 215 210 205 200 195 190 222.4
201.8 196.4 193.7 192.3
Current
Q4CY10
Q1CY10
Q2CY10
Q3CY10
Q4CY10
Q1CY10
Q2CY10
Q3CY10
Pricing power gives food companies relative protection vs. HPC peers As we have highlighted in the past (Young and Hungry, February 21, 2011), food companies are relatively better placed vis--vis HPC companies, as far as price increases are concerned. Consumers are more accepting of price increases, with food inflation being in double digits over the past three years (source: Nomura economics team). What has been a positive as far as Nestle is concerned is that volume growth has continued to be strong despite price increases.
Q4CY10
Current
Current
April 27, 2011
Fig. 8: Yearly volume and price growth

Volume growth not impacted by pricing actions
30% 25% 20% 15% 10% 5% 0% Q1CY10 14.3% 2.3%
Real Internal Growth
Price increase
6.6% 5.3% 19.6%
7.0%
5.4%
14.9%
18.7%
16.9%
Q2CY10
Q3CY10
Q4CY10
CY10
Margin expectations pared down for CY11F and CY12F We were earlier building in a significant 80bp margin improvement in CY11F and a more moderate 20bp improvement in CY12F. However, with input cost increases in 1Q CY11 being significantly ahead of our estimates, we now see limited scope for margin improvement. We are now building a more moderate increase in margins over the next couple of years. We now expect margins to improve by 50bps in CY11F and 30bps in CY12F. While margins were up 75bps in 1Q CY11, we would wait for more sustainable trends into the next quarter before re-looking at our margin assumptions. Our expectations for the rest of the year are a more steady 50bp increase in 2H CY11, with 2Q being the weakest quarter in terms of margin performance. Raising price target to Rs3,800 owing to roll forward We are raising our price target by nearly 8% to Rs3,800 (from Rs3,525 ) on account of a roll-forward by one quarter. There is a minimal 2% cut to our CY11F estimates and a 1% cut to our CY12F estimates, but our target multiple remains the same at 27x CY12F. This leads to a nearly 8% increase in our price target. Our valuation methodology is unchanged. Reaffirm NEUTRAL and look for a better entry point We continue to believe Nestle India is a great long-term story in the food space in India; however, our concern in the near term is around valuations, which are at 29.4x CY12F EPS of Rs130.3. We believe the stock is expensive at current levels, and would look for a better entry point into what we consider one of the best long-term stories in the Indian consumer space.
April 27, 2011
Fig. 9: Consumer and retail valuations

Company Food & Beverages Nestle * Jubilant Foodworks GSK Consumer * United Spirits HPC Hindustan Unilever Godrej Consumer Dabur Marico Colgate Palmolive Tobacco ITC Retail Pantaloon Retail Titan Industries Paints Asian Paints Ticker Rating Price Rs. FY11E NEST IN JUBI IN SKB IN UNSP IN Neutral Buy Buy Buy 3945 696 2355 1020 37.1x 65.0x 33.0x 23.9x 35.8x 29.1x 25.7x 28.4x 29.8x 26.8x 28.4x 30.3x P/E FY12E 30.3x 47.9x 27.4x 16.7x 28.4x 26.0x 20.0x 22.3x 25.2x 24.4x 24.5x 26.0x 1.3x 0.7x 0.9x 0.3x FY12E PEG
HUVR IN GCPL IN DABUR IN MRCO IN CLGT IN
Reduce Neutral Buy Reduce Reduce
284 380 100 138 885
5.2x 0.6x 1.0x 1.4x 3.6x
ITC IN
Buy
194
1.5x
PF IN TTAN IN
Buy Reduce
275 4124
16.4x 54.6x 45.3x 28.2x
12.0x 43.4x 35.8x 24.0x
0.3x 1.5x
APNT IN
Buy
2668
1.3x
Note: Prices as of 27 April, 2010 * Valuations are CY11F and CY12F Source: Bloomberg, Nomura research
10
April 27, 2011
Appendix A-1
Analyst Certification
I, Manish Jain, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

Mentioned companies
Issuer name Nestle India Ticker NEST IN Price 3945 INR Price date 27-Apr-2011 Stock rating Neutral Sector rating Not rated Disclosures
Previous Rating
Issuer name Nestle India Previous Rating Reduce Date of change 21-Feb-2011
Nestle India (NEST IN)

Rating and target price chart (three year history)
3945 (27-Apr-2011) Neutral (Sector rating: Not rated)

Date Rating 21-Feb-2011 Neutral 10-Nov-2010 3525.00 10-Nov-2010 Reduce 18-Aug-2010 3230.00 18-Aug-2010 Buy 24-Feb-2010 2366.00 24-Feb-2010 Reduce 24-Sep-2009 2177.00 12-Nov-2008 1598.00 12-Nov-2008 Neutral Target price Closing price 3480.00 3848.60 3848.60 2751.50 2751.50 2574.95 2574.95 2227.80 1350.20 1350.20
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our INR3,800 price target is based on 27x our CY12F EPS estimate of Rs130.3. Risks that may impede the achievement of the target price Negative risks arise from further increase in input prices and higher A&P spends. Positive risks come from better price/mix improvement vs. our expectations.
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April 27, 2011
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Distribution of ratings (Global)
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (exAsia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more.
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A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008)
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
Target Price
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Nestle India Limited _________________________________________________________________________________
Nestle India Limited: SWOT Analysis & Company Profile

Reference code: CG0293CP Published: Apr 2011
ICD Research John Carpenter House 7 Carmelite Street London EC4Y 0BS United Kingdom Tel: +44 (0) 20 7336 5200 Fax: +44 (0) 20 7336 5201
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Nestle India Limited - SWOT Profile Page 1
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Nestle India Limited __________________________________________________________________________________________
Nestle India Limited - Company Overview

Nestle India Limited (Nestle India) is a subsidiary of Nestl S.A. a global food products company based in Switzerland. The company principally engages in the manufacturing, marketing, exporting and sales of food and beverage products which include milk products and nutrition products, beverages, prepared dishes and cooking aids, and chocolates and confectionery. It markets its products under international brand names such as Nescafe, Milo, Nestea Maggi, Milky bar, Kit Kat, Bar-One, Milkmaid, Nestle Milk, Nestle Slim Milk and Nestle Fresh. The company has seven manufacturing facilities and four branch offices and operates all over India. It also exports its products to Russia, Australia and Africa. The company is headquartered in Gurgaon, Haryana, India.
Financial Performance
The company reported revenue of INR62,547.5 million during the fiscal year 2010 (FY2010). The company's revenue grew at a CAGR of 22.08% during 200610 with an annual growth of 21.9% over FY2009. During FY2010, operating margin of the company was 18.3% as compared to operating margin of 17.9% in FY2009. During FY2010, the company recorded net margin of 13.1% as compared to net margin of 12.8% in FY2009.
Nestle India Limited - Key Facts

Nestle India Limited, Key Facts
Nestle House, Gurgaon, , 122
Corporate Address:
002, India
Ticker Symbol, Stock Exchange
500790 (Bombay Stock Exchange)
Telephone
+ 91 124 6389300
No. of Employees
4,983
Fax
+ 91 124 6389411
Financial Year End
December
URL
www.nestle.in
Revenue (in INR Million)
62,974.00
Industry
Consumer Packaged Goods
Revenue (in USD Million)
1,370.79
Locations
Australia, Bangladesh, Fiji, India, Sri Lanka, Russian Federation, Kenya, South Africa
Source: Annual Report, Company Website, Primary and Secondary Research
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Nestle India Limited - Business Description

Nestle India Limited (Nestle India) engages in the manufacture, marketing, export and sale of food and beverage products. The company is a subsidiary of Nestle S.A. It operates all its business activities under one principal business segment, Food. Nestle India categorizes its food business into the four food groups, Milk Products and Nutrition, Prepared Dishes and Cooking Aids, Beverages, and Chocolates and Confectionery. The Milk Products and Nutrition group of the company manufactures and markets infant milk substitutes, feeding bottles, infant foods, dairy whitener, processed milk, low fat milk, ghee, yoghurt, yoghurt drinks and skimmed and sweetened milk solids. The company markets these products under various brands such as Nestl Everyday Dairy Whitener, Nestl Everyday ghee, Nestl Milk, Nestl Slim milk, Nestl Fresh 'N' Natural Dahi (Yoghurt), Nesvita Fruit Yoghurt, Cerevita, Milkmaid and Nestl Nido. In addition, the company exports its dairy whitener, sweetened milk solid and ghee products. Under the Prepared Dishes and Cooking Aids group, the company manufactures and markets instant noodles, ready-tocook noodles, snacks, whole wheat flour and vegetable noodles, Indian sauces and ketchups, pastes of traditional Indian spices and authentic Indian recipes, curry pastes, and dried soups. Nestle India markets these products under its key brand Maggi. Maggi was ranked as the most valuable food brand in a survey conducted by ICMR in 2009. The company also exports products such as instant noodles, Chinese noodles, sauces, curry pastes and healthy soups. The Beverages group of the company manufactures and markets instant coffee powder and health drinks. It markets all its instant coffee powder products under the brand name Nescafe which further comprises Classic and Sunrise brand names. For exports, the company manufactures instant coffee powder under the brands Nescafe and Sunrise; hot and cold water soluble green and black tea powders sold in bulk quantities; tea bags under the brand Nestea; and energy drinks under the brand Milo. In addition, the company manufactures pre-mixes for use in vending machines in this category. These mixes include coffee frappe, plain and cardamom flavored tea premixes, hot chocolate, iced tea and almond milk vending mixes. The companys Chocolate and Confectionery Group manufactures and markets wafers with chocolate layer, milk treat, nougat and caramel, caramel eclairs and mint rolls. It markets these products under the brands Kit Kat, Munch, Bar One and Polo. The company also exports all the product lines in this group. Geographically, the company exports its products to Sri Lanka, Bangladesh, Papua New Guinea, Fiji, Kenya, Russia, Australia and Africa.
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Nestle India Limited - Major Products and Services

Nestle India Limited engages in the manufacture, marketing, export and sales of food and beverage products. The companys key products include the following: Nestle India Limited, Major Products and Services
Products: Milk substitutes Children nutrition milk Infant foods Dairy whitener Processed milk Low fat milk Ghee Yoghurt Yoghurt drinks Skimmed and sweetened milk solids Instant noodles Ready to cook noodles Fortified taste enhancers Ready-to-use gravy base Coconut milk powder Pasta Snacks Whole wheat flour and vegetable noodles Indian sauces and ketchups Pastes of traditional Indian spices and authentic Indian recipes Curry pastes Dried soups Instant coffee powder and health drinks Tea Chocolates Wafers with chocolate layer Milk treat Nougat and caramel Caramel eclairs Mint rolls Brands: NESTL EVERYDAY Dairy Whitener EVERYDAY Slim EVERYDAY pure Ghee NESVITA PRO-HEART
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NESCAF CLASSIC NESTEA NESTEA Iced Tea MAGGI 2-MINUTE Noodles MAGGI Sauces MAGGI RICE NOODLE MANIA MAGGI Healthy Soup- Sanjeevni NESTL KITKAT KIT KAT CHUNKY KIT KAT Mini MUNCH NESTL Milk Chocolate NESTL BAR-ONE NESTL Milk Chocolate MUNCH POP CHOC POLO XTRA STRONG
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Nestle India Limited - History

Nestle India Limited, History
Year Event type Description The company acquired Healthcare Nutrition Business from Speciality Foods India Private Limited, another Indian subsidiary of Nestl S.A.
2010
Acquisitions/Mergers/Takeovers
2010
Others
Nestle India added a portfolio of nutritional product brands such as Resource, Optifast, and Spert.
2010
Plans/Strategy
The company has plans to open two new plants by 2011-12, with one of the proposed plants located in Himachal Pradesh.
2009
Corporate Awards
The company was ranked amongst The Most Consistent Top 10 Wealth Creators in Motilal Oswals 14 Annual Wealth Creation Study.
2009
Corporate Awards
The company received various awards which included Star Multinational from Business Standard, and Business Leadership Award from NDTV PROFIT.
2008
New Product Approvals
Nestle launched two new variants in its popular Kit Kat brand namely, Kit Kat Chunky and Kit Kat Mini.
2008
Corporate Awards
The company received a prestigious Export Award for 2008 from the Ministry of Commerce and Industry in recognition of outstanding export performance in the export of Instant Tea during the year 2006-07.
2007
Corporate Changes/Expansions The plant in Uttaranchal started its initial phase of production.
2005
Corporate Changes/Expansions The company started its seventh factory in Uttaranchal, India.
2003
Business / Operations Closure
The company withdrew from the bottled water business.
2002
Contracts/Agreements
McDonald's India entered into a strategic agreement with Nestle India to jointly offer beverages such as ice-tea and cold-coffee as well as desserts at their restaurants.
2001
New Products/Services
Nestle, the parent company started the domestic bottled water business, and marketed drinking water under the brand name 'Pure Life'.
2001
Nestle India introduced a second premium mineral water brand, San Pellegrino. It also introduced its ultra heat-treated liquid milk, Nestle Pure Milk, in Bangalore, Chennai, Hyderabad and Kochi, India.
1995
Corporate Changes/Expansions
The company started Nanjangud factory to manufacture chocolate and energy food drink products.
1995
Corporate Changes/Expansions The company constructed a new factory at Bicholim, Goa.
1994
The company introduced a variety of new products which included Cerelac soya, Milk Maid, dessert mixes, Contodina snack dressing and the chocolate items, milky base marbles and bar one peanut.
1993
The Samalkha factory started operating commissioned and manufactured cereal based products, culinary products, milk products and water.
1990
The company started chocolate business by introducing Nestle chocolates in the markets.
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1989
The company was acquired by Nestle and its name was changed from Food Specialities to Nestle India.
1987
The company constructed a factory at Nanjangud in Karnataka, to manufacture instant coffee.
1962
The company started manufacturing operations through its first factory at Moga, Punjab.
1959
Incorporation/Establishment
Nestle India was founded in 1959.
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Nestle India Limited - SWOT Analysis SWOT Analysis - Overview

Nestle India Limited (Nestle India) is the manufacturer of milk products and nutrition, beverages, prepared dishes and cooking aids, chocolates and confectionery products. Strong financial performance, wide product offerings and strong brand portfolio are the key strengths of the company, even as its overdependence on domestic market and increasing current liabilities remain major areas of concern. Going forward, risks associated with changing consumer preferences and government regulations may affect the company's results of operations. However, strategic growth initiatives, recovering economy and growing nutraceuticals market provides ample growth opportunities for the company.
Nestle India Limited - Strengths

Strong financial performance Nestle India exhibited a strong financial performance during FY2010, which will enable it to pursue its growth plans, aggressively. It reported revenues of INR62974.0 million during FY2010, an increase of 21.8% over 2009. Also, its revenues grew at a compound annual growth rate (CAGR) of 20.3%, during the period, 2008-2010. In addition, the operating profit of the company was INR11451.1 million during FY2010, an increase of 25.0% over 2009. Furthermore, the net profit of the company was INR8186.6 million during FY2010, an increase of 25.0% over 2009. Such a strong financial performance of the company may improve its future growth and expansion plans. Wide product offerings The companys wide range of products offerings help it to serves a huge customer base, which in turn enhances its topline performance. Nestle India offers various food products under branded and private labels. It offers products under four food groups: milk products and nutrition, prepared dishes and cooking aids, beverages, and chocolates and confectionery. Milk products and nutrition products include infant milk substitutes, feeding bottles, infant foods, dairy whitener, processed milk, low fat milk, ghee, yoghurt, yoghurt drinks and skimmed and sweetened milk solids. Prepared dishes and cooking aids include noodles, snacks, Indian sauces and ketchups, pastes of traditional Indian spices and authentic Indian recipes, curry pastes, and dried soups. Beverages include instant coffee powder and health drinks. Chocolate and confectionery include chocolate layer, milk treat, nougat and caramel, caramel clairs and mint rolls. Such a wide range of offerings also mitigates the risks associated depending on select products for a major share of revenues, besides fulfilling the diverse requirements of customer base. Strong brand portfolio Strong brand portfolio being enjoyed by its products provides a competitive edge for the company over its peers in the industry. Nestle India offers milk products and nutrition, prepared dishes and cooking aids, beverages, and chocolates and confectionery. Milk products and nutrition brands include NESTL EVERYDAY Dairy Whitener, NESTL EVERYDAY Ghee, NESTL Milk, NESTL Slim Milk, NESTL NESVITA PRO-HEART MILK, NESTL Fresh 'n' Natural Dahi, NESTL Fresh 'n' Natural Slim Dahi, NESTL Jeera Raita, NESTL NESVITA Dahi, NESTL MILKMAID Fruit yoghurt, NESTL MILKMAID, NESTL Dahi, NESTL NESLAC, NESTL Start Healthy Stay Healthy. Prepared dishes and cooking aids barnd include Maggi. Beverages brands include Nescafe, Sunrise, Nestea, and Milo. Chocolate and confectionery brands include Kit Kat, Munch, Bar One and Polo. Moreover, most of these brands not only enjoy strong brand recall, but also have stronger market share, worldwide. Strong brand portfolio will sustain company's products forward in the crowded consumer packaged goods market, going forward too.
Nestle India Limited - Weaknesses

Overdependence on domestic market The companys overdependence on domestic market for its revenues exposes it to various risks associated with geographical concentration. Though the company exports its products to various geographic regions such as Sri Lanka, Bangladesh, Papua New Guinea, Fiji, Kenya, Russia, Australia and Africa, the majority of its revenues still come from India. During FY2010, the company generated 93.7% of its total revenue from domestic market. This dependence on domestic market could impact its operational and financial performance in the event of any economic, political or climatic change. It also could restrict its market share and growth opportunities. Increasing current liabilities Increasing current liabilities negatively impacts the company's liquidity position. The companys current ratio was 0.6 at the end of FY2010. Weak ratio was principally due to an increase in the companys current liabilities. Its total current liabilities stood at INR16696.1 million, an increase of 17.4% over 2009. Nestle Indias current ratio was also below the Food Processing industry average of 1.8. A lower than the industry average current ratio indicates weaker financial
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position of the company and its inability in meeting short term obligations than other companies in the industry. Limited liquidity position puts the company at a disadvantage while funding any potential opportunity arising in the market.
Nestle India Limited - Opportunities

Strategic growth initiatives Strategic growth initiatives such as expansion of manufacturing plants and new product launches will help the company to expand and strengthen its market presence, which in turn, will have a positive impact on its top-line performance. For instance, in January 2011, the company launched Neslac, an infant food in to the infant food market to increase its dominance in growing baby food market in India, which helps to increase its market share against rivals such as Farex from Heinz India. Apart from this, the company expands its geographic presence by establishing food and beverage manufacturing unit in Himachal Pradesh. Strategic initiatives such as these will enable it to offer its products to a broad customer base. Recovering economy The global economic slowdown, which impacted all sectors across the globe, is in a recovery mode. The economic slowdown had posed a major challenge for most of the companies as market volatility concerns have resulted into a sharp decline in the demand for various products. According to The World Bank, overall global GDP contracted by 2.2% in 2009, with Euro zone, Japan and the US contracting by 3.9%, 5.4% and 2.5%, respectively. The growth rate in developing economies too declined from 5.6% in 2008 to 1.2% in 2009. China, India and Brazil witnessed a GDP growth of 8.4%, 6% and 0.1% in 2009 as compared to 9%, 6.1% and 5.1% in 2008, respectively. Russia, Mexico and South Africa contracted by 8.7%, 7.1% and 1.8% compared to a growth of 5.6%, 1.4% and 3.7% in 2008, respectively. However, with various massive stimulus packages announced by respective governments to bring their economies back on track, the global output is expected to expand by 3.2% in 2011. Euro zone, Japan and the US are expected to grow by 1.7%, 1.8% and 2.7% in 2011, respectively. China is expected to post a GDP growth of 9% during 2011 while India, Russia and Brazil are expected to grow at a GDP of 8%, 3% and 3.9% in 2011, respectively. Though the GDP growth is below the 2007 levels, the recovering economy offers ample growth opportunities for the company, as companies across different sectors are pursuing their growth plans, more aggressively, than before. Growing nutraceuticals market According to a Federation of Indian Chambers of Commerce & Industry (FICCI)-Ernst & Young study, the Indian nutraceuticals market was estimated at US$1 billion, which has been growing at a compound annual growth rate of 18% for the last three years, driven by functional food and beverages categories. However, the latent market in India is two to four times the current market size and is estimated at US$2-4 billion with almost 148 million potential customers. Such a market outlook will help the company to expand its product offerings, which in turn increases its top-line performance.
Nestle India Limited - Threats

Changing consumer preferences Evolving consumers preferences pose a major challenge for the company. In this scenario, the success of the company's business depends on its ability to identify dietary habits and taste preferences of the consumers and to offer products, which match their preference. At the same time, regular introduction of new products and product extensions involves considerable development and marketing costs. If the companys products fail to meet consumers preference, its return on investment could suffer. Government regulations The company, being a producer and marketer of food products, is subjected to various regulations by federal governmental agencies, including the Food and Drug Administration, the Department of Agriculture, the Federal Trade Commission, the Environmental Protection Agency and the Department of Commerce, as well as various state agencies, with respect to production processes, product quality, packaging, labeling, storage and distribution. In addition, advertising of its businesses is subject to regulation by the Federal Trade Commission. The company is also subjected to certain health and safety regulations, including those issued under the Occupational Safety and Health Act. Similar regulations have been introduced in various countries. The company should comply with all such stringent governmental regulations, failure of which may expose the company to new liabilities or may hamper its existing operations, which could result in decline in its profitability.
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23
Nestle India Limited - Key Competitors

The following companies are the major competitors of Nestle India Limited: Assam Company Limited Cadbury India Ltd Ccl Products (India) Ltd Gujarat Cooperative Milk Marketing Federation Ltd. McLeod Russel India Limited Tata Global Beverages Limited Warren Tea Ltd Tata Coffee Limited
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24
Nestle India Limited - Key Employees
Nestle India Limited, Key Employees

Name Job Title Board Level Since Age
Antonio Helio Waszyk
Chairman, Managing Director Secretary, Senior Vice President Legal Director
Executive Board
2009
B. Murli
Senior Management
Dr. Rakesh Mohan
Non Executive Board
2010
Michael W.O. Garrett
Director
Non Executive Board
1992
68
Pradip Baijal
Director
Non Executive Board
2007
Ravinder Narain
Director
Non Executive Board
1978
73
Richard Sykes
Alternate Director
Non Executive Board
Shobinder Duggal
Director - Finance and Control
Executive Board
2004
Christian Schmid
Technical Director
Executive Board
2010
Swati A. Piramal
Director
Non Executive Board
2010
52
___________________________________________________________________________________________
25
Nestle India Limited - Key Employee Biographies

Nestle India Limited, Key Employee Biographies
Antonio Helio Waszyk Job Title : Chairman, Managing Director Board Level : Executive Board Since : 2009 Mr. Waszyk has been the Chairman and the Managing Director of Nestle India Limited since 2009. He has been associated with the Nestle group since 1977. Prior to this, he was the Head of the Food Strategic Business Unit (SBU), Switzerland.
Shobinder Duggal Job Title : Director - Finance and Control Board Level : Executive Board Mr. Duggal has been the Director for Finance and Control of the company since 2004. He has been associated with the company since 1986. Prior to this, he was the Vice President for Corporate Control of the company.
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26
Nestle India Limited - Locations and Subsidiaries Head Office Nestle India Limited
Nestle House Gurgaon Zip: 122 002 India Tel: + 91 124 6389300 Fax: + 91 124 6389411
Other Locations & Subsidiaries

Nestle India Limited, Locations
1st Floor, ICC Chambers, Near Saki Vihar Telephone Exchange Mumbai Zip: 400 072 India
M-5A, Connaught Circus New Delhi Zip: 110 001 India
Tower C, 12 Floor, DLF IT Park, 08, Major Arterial Road, Block Spencer Plaza, 6th Floor AF Chennai Kolkata Zip: 600 002 Zip: 700 156 India India
Factory Industrial Area Mysore District Zip: 571 301 India
Factory Ludhiana-Ferozepur Road Moga Zip: 142 001 India
Factory P.O. Cherambadi Dist. Nilgiris Zip: 643 205 India
Factory Patti Kalyana, Kiwana Road Samalkha, District Panipat Zip: 132 101 India
Factory Plot No. 1, Sector No. 1A
Factory Plot No. 294-297
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27

Pantnagar, Dist. Udhamsingh Nagar Zip: 263145 India Ponda Zip: 403 406 India
Factory Village Maulinguem (North) Bicholim Taluka Zip: 403 504 India
___________________________________________________________________________________________
28
Nestle India Limited - Financial Ratios

Financial Ratios - Capital Market Ratios
Nestle India Limited, Ratios based on current share price
Key Ratios P/E (Price/Earnings) Ratio EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization) Enterprise Value/Sales Enterprise Value/Operating Profit Enterprise Value/Total Assets Dividend Yield
Note: Above ratios are based on share price as of 21-Feb-2011. The above ratios are absolute numbers. Source: Annual Report, Company Website, Primary and Secondary Research
21-Feb-2011 40.98 26.35 5.33 29.29 12.87 0.01
Financial Ratios - Annual Ratios

Nestle India Limited, Annual Ratios Key Ratios
Equity Ratios EPS (Earnings per Share) Dividend per Share Dividend Cover Book Value per Share Profitability Ratios Gross Margin Operating Margin Net Profit Margin Profit Markup PBT Margin (Profit Before Tax) Return on Equity Return on Capital Employed Return on Assets Return on Fixed Assets Growth Ratios Sales Growth EBITDA Growth Net Income Growth EPS Growth Working Capital Growth Cost Ratios Operating Costs (% of Sales) Administration Costs (% of Sales) Liquidity Ratios Current Ratio Quick Ratio Cash Ratio Absolute Absolute Absolute 0.63 0.28 0.15 0.6 0.25 0.11 0.67 0.31 0.16 0.67 0.25 0.04 0.7 0.34 0.1 % % 81.82 17.07 82.25 18.99 82.27 17.27 82.19 17.73 83.06 17.94 % % % % % 21.94 23.79 24.99 23.6 10.22 18.62 18.85 22.64 23.54 46.27 23.4 23.01 29.06 28.77 20.92 24.44 28.63 31.33 30.97 37.01 13.69 3.98 1.78 3.27 4.88 % % % % % % % % % 36.75 18.18 13 104.7 18.18 95.7 122.16 31.4 73.35 38.44 17.75 12.68 109.5 17.75 112.69 138.92 31.45 74.8 36.45 17.73 12.25 58.07 17.73 112.83 140.73 30.8 82.57 37.07 17.81 11.72 59.6 17.81 98.9 128.07 28.57 77.54 36.66 16.94 11.11 58.55 16.94 81.03 101.72 25.39 68.07 INR INR Absolute INR 84.91 48.5 1.75 88.72 67.94 48.5 1.4 60.29 55.39 35 1.58 49.09 42.92 33 1.3 43.4 32.68 25.5 1.28 40.33
Unit/Currency
2010
2009
2008
2007
2006
___________________________________________________________________________________________
29
Leverage Ratios Debt to Equity Ratio Net Debt to Equity Debt to Capital Ratio Efficiency Ratios Asset Turnover Fixed Asset Turnover Inventory Turnover Current Asset Turnover Capital Employed Turnover Revenue per Employee Net Income per Employee Capex to Sales Absolute Absolute Absolute Absolute Absolute INR INR % 2.42 4.62 6.84 6.02 7.36 12,552,162 1,642,916 7.11 4.96 5.85 4.81 5.03 2.48 5.31 6.3 6.03 8.89 2.51 5.14 6.29 5.46 9.21 2.44 5.43 5.47 5.53 8.44 2.29 5.21 6.43 5.3 7.29 Absolute Absolute Absolute 0.01 0.03 0.01 0.05 0.03 0.01 0.1 0.01 0.04 0.24 0.03
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30
Financial Ratios - Interim Ratios

Nestle India Limited, Interim Ratios Key Ratios
Equity Ratios Interim EPS (Earnings per Share) Book Value per Share Profitability Ratios Gross Margin Operating Margin Net Profit Margin Profit Markup PBT Margin (Profit Before Tax) Cost Ratios Operating Costs (% of Sales) Administration Costs (% of Sales) Liquidity Ratios Current Ratio Quick Ratio Leverage Ratios Net Debt to Equity Absolute 29.84 18.05 Absolute Absolute 0.63 0.28 0.85 0.29 % % 81.89 7.16 81.46 6.04 81.35 7.19 80.76 6.38 % % % % % 51.96 18.11 12.07 110.04 17.18 50.64 18.54 13.27 103.8 18.37 50.24 18.65 13.38 102.28 18.65 49.85 19.24 13.56 100.63 19.24 INR INR 21.1 88.72 22.67 41.14 91.02 20.94
Unit/Currency
Dec-2010
Sep-2010
Jun-2010
Mar-2010
___________________________________________________________________________________________
31
Financial Ratios - Ratio Charts
Nestle India Limited, Ratio Charts EPS Operating Margin
Return on Equity
Return on Assets
Debt to Equity Ratio
Current Ratio
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32
Nestle India Limited - Share Data

Nestle India Limited, Share Data
Price (INR) as on 21-Feb-2011 EPS (INR) Market Cap ( million INR) Enterprise Value ( million INR) Shares Outstanding
2,879.85 84.91 335,526.69 335,419.31 96,415,716
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33
Appendix Methodology
Progressive Digital Media company reports are based on a core set of research techniques which ensure the best possible level of quality and accuracy of data. The key sources used include: Company Websites Company Annual Reports SEC Filings Press Releases Proprietary Databases
Notes Financial information of the company is taken from the most recently published annual reports or SEC filings The financial and operational data reported for the company is as per the industry defined standards Revenue converted to USD at average annual conversion rate as of fiscal year end
Ratio Definitions
Capital Market Ratios
Capital Market Ratios measure investor response to owning a company's stock and also the cost of issuing stock.
Price/Earnings Ratio (P/E)
Price/Earnings (P/E) ratio is a measure of the price paid for a share relative to the annual income earned per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of income, so the stock is more expensive compared to one with lower P/E ratio. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. Price per share is as of previous business close, and EPS is from latest annual report. Formula: Price per Share / Earnings per Share Enterprise Value/EBITDA (EV/EBITDA) is a valuation multiple that is often used in parallel with, or as an alternative to, the P/E ratio. The main advantage of EV/EBITDA over the PE ratio is that it is unaffected by a company's capital structure. It compares the value of a business, free of debt, to earnings before interest. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / (Net Income + Interest + Tax + Depreciation + Amortization) Enterprise Value/Sales (EV/Sales) is a ratio that provides an idea of how much it costs to buy the company's sales. EV/Sales is seen as more accurate than Price/Sales because market capitalization does not take into account the amount of debt a company has, which needs to be paid back at some point. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Sales Enterprise Value/Operating Profit measures the company's enterprise value to the operating profit. Price per share is as of previous business close, and shares outstanding last reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Operating Income
Enterprise Value/Earnings before Interest, Tax, Depreciation & Amortization (EV/EBITDA)
Enterprise Value/Sales
Enterprise Value/Operating Profit
Enterprise Value/Total Assets
Enterprise Value/Total Assets measures the company's enterprise value to the total assets. Price per share is as of previous business close, and shares outstanding last
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34
reported. Other items are from latest annual report. Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Total Assets Dividend Yield shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Formula: Annual Dividend per Share / Price per Share Equity Ratios These ratios are based on per share value.
Dividend Yield
Earnings per Share (EPS)
Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. Formula: Net Income / Weighted Average Shares
Dividend per Share
Dividend is the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Dividend Cover
Dividend cover is the ratio of company's earnings (net income) over the dividend paid to shareholders. Formula: Earnings per share / Dividend per share Book Value per Share measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Formula: (Shareholders Equity - Preferred Equity) / Outstanding Shares Cash Value per Share is a measure of a company's cash (cash & equivalents on the balance sheet) that is determined by dividing cash & equivalents by the total shares outstanding. Formula: Cash & equivalents / Outstanding Shares Profitability Ratios are used to assess a company's ability to generate earnings, based on revenues generated or resources used. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.
Book Value per Share
Cash Value per Share
Profitability Ratios
Gross Margin
Gross margin is the amount of contribution to the business enterprise, after paying for direct-fixed and direct variable unit costs. Formula: {(Revenue-Cost of revenue) / Revenue}*100 Operating Margin is a ratio used to measure a company's pricing strategy and operating efficiency. Formula: (Operating Income / Revenues) *100 Net Profit Margin is the ratio of net profits to revenues for a company or business segment - that shows how much of each dollar earned by the company is translated into profits. Formula: (Net Profit / Revenues) *100 Profit Markup measures the company's gross profitability, as compared to the cost of revenue. Formula: Gross Income / Cost of Revenue
Operating Margin
Net Profit Margin
Profit Markup
PBIT Margin (Profit Before Interest & Tax)
Profit Before Interest & Tax Margin shows the profitability of the company before interest expense & taxation. Formula: {(Net Profit + Interest + Tax) / Revenue} *100
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35
PBT Margin (Profit Before Tax)
Profit Before Tax Margin measures the pre-tax income over revenues. Formula: {Income Before Tax / Revenues} *100 Return on Equity measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. Formula: (Net Income / Shareholders Equity)*100 Return on Capital Employed is a ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings. Formula: EBIT / (Total Assets Current Liabilities)*100 Return on Assets is an indicator of how profitable a company is relative to its total assets, the ratio measures how efficient management is at using its assets to generate earnings. Formula: (Net Income / Total Assets)*100 Return on Fixed Assets measures the company's profitability to its fixed assets (property, plant & equipment). Formula: (Net Income / Fixed Assets) *100
Return on Equity
Return on Capital Employed
Return on Assets
Return on Fixed Assets
Return on Working Capital
Return on Working Capital measures the company's profitability to its working capital. Formula: (Net Income / Working Capital) *100
Cost Ratios
Cost ratios help to understand the costs the company is incurring as a percentage of sales.
Operating costs (% of Sales)
Operating costs as percentage of total revenues measures the operating costs that a company incurs compared to the revenues. Formula: (Operating Expenses / Revenues) *100
Administration costs as percentage of total revenue measures the selling, general and Administration costs (% of administrative expenses that a company incurs compared to the revenues. Sales) Formula: (Administrative Expenses / Revenues) *100 Interest costs as percentage of total revenues measures the interest expense that a company incurs compared to the revenues. Formula: (Interest Expenses / Revenues) *100 Leverage ratios are used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses.
Interest costs (% of Sales)
Leverage Ratios
Debt to Equity Ratio
Debt to Equity Ratio is a measure of a company's financial leverage. The debt/equity ratio also depends on the industry in which the company operates. For example, capitalintensive industries tend to have a higher debt equity ratio. Formula: Total Liabilities / Shareholders Equity Debt to capital ratio gives an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-tocapital ratio, the more debt the company has compared to its equity. This indicates to investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk. Formula: {Total Debt / (Total assets - Current Liabilities)}
Debt to Capital Ratio
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36
Interest Coverage Ratio
Interest Coverage Ratio is used to determine how easily a company can pay interest on outstanding debt, calculated as earnings before interest & tax by interest expense. Formula: EBIT / Interest Expense Liquidity ratios are used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.
Liquidity Ratios
Current Ratio
Current Ratio measures a company's ability to pay its short-term obligations. The ratio gives an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. Formula: Current Assets / Current Liabilities Quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Formula: (Current Assets - Inventories) / Current Liabilities Cash ratio is the most stringent and conservative of the three short-term liquidity ratio. It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities. Formula: {(Cash & Bank Balance + Marketable Securities) / Current Liabilities)}
Quick Ratio
Cash Ratio
Efficiency Ratios
Efficiency ratios measure a company's effectiveness in various areas of its operations, essentially looking at maximizing its use of resources.
Fixed Asset Turnover
Fixed Asset Turnover ratio indicates how well the business is using its fixed assets to generate sales. A higher ratio indicates the business has less money tied up in fixed assets for each currency unit of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets. Formula: Net Sales / Fixed Assets Asset turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue to the company. A higher asset turnover ratio shows that the company has been more effective in using its assets to generate revenues. Formula: Net Sales / Total Assets Current Asset Turnover indicates how efficiently the business uses its current assets to generate sales. Formula: Net Sales / Current Assets Inventory Turnover ratio shows how many times a company's inventory is sold and replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. Formula: Cost of Goods Sold / Inventory Working Capital Turnover is a measurement to compare the depletion of working capital to the generation of sales. This provides some useful information as to how effectively a company is using its working capital to generate sales. Formula: Net Sales / Working Capital
Asset Turnover
Current Asset Turnover
Inventory Turnover
Working Capital Turnover
Capital Employed Turnover
Capital employed turnover ratio measures the efficiency of a company's use of its equity in generating sales revenue to the company.
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37
Formula: Net Sales / Shareholders Equity Capex to Sales ratio measures the company's expenditure (investments) on fixed and related assets' effectiveness when compared to the sales generated. Formula: (Capital Expenditure / Sales) *100 Net income per Employee looks at a company's net income in relation to the number of employees they have. Ideally, a company wants a higher profit per employee possible, as it denotes higher productivity. Formula: Net Income / No. of Employees Revenue per Employee measures the average revenue generated per employee of a company. This ratio is most useful when compared against other companies in the same industry. Generally, a company seeks the highest revenue per employee. Formula: Revenue / No. of Employees Efficiency Ratio is used to calculate a bank's efficiency. An increase means the company is losing a larger percentage of its income to expenses. If the efficiency ratio is getting lower, it is good for the bank and its shareholders. Formula: Non-interest expense / Total Interest Income
Business Review
Capex to sales
Net income per Employee
Revenue per Employee
Efficiency Ratio
Disclaimer
All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Progressive Digital Media. The data and analysis within this report is driven by Progressive Digital Media from its own primary and secondary research of public and proprietary sources and does not necessarily represent the views of the company profiled. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Progressive Digital Media delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Progressive Digital Media can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.
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Table of Contents

Rpt. 17518977 27-Apr-2011

Rpt. 17573361 18-Apr-2011

NESTLE INDIA LTD ICD RESEARCH - COMPANY SWOT - RESEARCH DEPARTMENT

These reports were compiled using a product of Thomson Reuters

Strong start to a likely steady year

Attractive long-term play; however, valuations cap the near-term upside

31 Dec Currency (INR)

FY10 Actual Old

FY11F New Old

Nomura | ASIA Nestle India

April 27, 2011

Key data on Nestle India

Strong revenue growth helped by volumes, pricing and mix improvement

6,976 -426 6,549 1,079

8,371 -185 8,187 -5,448 2,738

10,256 0 10,256 -5,462 4,794

12,563 0 12,563 -6,363 6,199

15,306 0 15,306 -7,424 7,882

21.9 20.2 20.9 22.9 20.0 22.9 20.0

22.1 25.4 25.6 22.5 22.5

22.4 23.9 22.9 22.5 22.5

20.0 20.9 20.5 21.8 21.8

1M 6.9 7.5 3.9 8,558.7

3M 11.2 13.9 7.5

12M 41.2 41.2 35.1

84.91 86.83 86.83 88.72 56.51

106.37 106.37 106.37 138.44 56.65

130.30 130.30 130.30 202.74 66.00

158.75 158.75 158.75 284.48 77.00

Nomura | ASIA Nestle India

April 27, 2011

Strong free cash flow generation despite aggressive expansion plans

-7,424 1,924 2,294 4,219 -4,219

FY10 2,553 0 633 5,760

1,380 1,514 8,566 10,460 2,033 1,507 9,758 13,616

FY11F 2,244 0 773 7,041 1,920 11,978 1,507 19,125

FY12F 2,294 0 946 8,621 2,351 14,213 1,507 24,629

FY13F 4,219 0 1,135 10,343 2,821 18,518 1,507 29,093

Increased capital expenditure takes a toll on cash balances

0 25,583 7,617 9,079 16,696 0 333 17,029 0 0 964 7,590

0 32,609 9,387 8,791 18,178 750 333 19,261 0 0 964 12,384

0 40,349 11,495 8,974 20,469 0 333 20,801 0 0 964 18,583

0 49,118 13,791 7,653 21,444 0 245 21,688 0 0 964 26,466

14,224 0 320 14,544 0

0.60 0.63 1,061.8

net cash net cash

net cash net cash

net cash net cash

net cash net cash

net cash net cash

3.7 57.8 72.5 -11.0

3.4 56.2 74.6 -15.1

3.4 56.1 74.8 -15.3

3.4 56.4 75.2 -15.4

Nomura | ASIA Nestle India

April 27, 2011

Minor tweaks to our earnings estimates

Nomura | ASIA Nestle India

April 27, 2011

Nomura | ASIA Nestle India

April 27, 2011

Q2 CY11F 17,954 22.4% 3,620 20.2% 2,352 16.7%