📢 5 STEPS TOWARDS WEALTH 🚀 The Indian Stock Market Way
NESTLE INDIA 2776 Long Term Gr: 11% | H1_fy25 RESULT: SALES GR: 2%
(Muted growth in the continuity from Q1 to Q2 )
Company: Nestle was founded in 1866 in Switzerland as a condensed Milk Company & are today with 3 Lakh plus employees world wide and around 50K crore Profits Annually. NESTLÉ's relationship with India dates back to 1912 (110 Years long relation), when it began trading as The NESTLÉ Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market.
### *Industry Overview and Peer Comparison:*
- Nestlé India operates in the *FMCG* sector, which has been experiencing a *slowdown* due to inflationary pressures and soft consumer demand, similar to its peers such as Hindustan Unilever and Britannia.
- Nestlé has outperformed its competitors in the *beverages and milk product* categories but faces competitive pressure in confectionery and nutrition products.
### *Historical Performance:*
They were doing revenue and profits of around 2000 Cr and 175 Cr respectively during the year 2001 while this year their revenue and profits have reached 19000 Cr & 3000 Cr respectively. Have grown by around 10X during the last 2 decades, with A CAGR of 11%. Today’s profit are more than Yesterday’s sales. Hence, investment of 1 lakh is around 4 Cr with a Consistent dividend distribution of around 65%-80% of profits every year in the last 3 decades. Consistent CAGR in the price of 20% which is not for the last 10-20 but 30 years. Good consistent profits. A company with among the highest margins. World top brands like Nescafé, KitKat as well as Maggi are created by Nestle.
Q2_fy25 Results:
### *Sales Growth:*
- *Total Sales* for Q2 FY25 stood at ₹5,074.8 crore, reflecting a *1.3% growth* compared to ₹5,037.6 crore in Q2 FY24.
- *Domestic sales* increased by *1.2%*, showcasing slight growth in a challenging environment.
### *Profit Margins:*
- *Net Profit* for Q2 FY25 was ₹900 crore, a *1% drop* from the previous quarter's ₹908 crore.
- The *Profit from Operations* stood at *21.0%* of sales, indicating operational efficiency, although consumer demand has shown some weakness.
- *Earnings per share (EPS)* for Q2 FY25 was ₹10.23, lower than ₹10.90 from the previous year.
### *Profitability Ratios:*
- *Operating Profit Margin*: 21.0% of sales in Q2 FY25.
- *Net Profit Margin*: 19.4% in Q2 FY25 versus 21.3% in the previous quarter.
### *Leverage Ratios:*
- *Debt to Equity Ratio: The company’s leverage remains modest, with **minimal borrowings* reported. Total borrowings stood at ₹304.3 million as of September 2024, showcasing financial prudence.
- *Interest Coverage Ratio*: This remains strong given the minimal debt load and healthy operational profits, showcasing the company's ability to comfortably service any existing debt obligations.
### *Liquidity Ratios:*
- *Current Ratio: The company’s current assets amounted to ₹28,578.9 million against current liabilities of ₹37,863.1 million, resulting in a current ratio of **0.75*, indicating a moderately tight liquidity position.
- *Quick Ratio*: The quick ratio is also below 1 due to inventory-heavy current assets.
### *Product Group Performance:*
1. *Prepared Dishes and Cooking Aids*: Strong growth through premium innovations such as MAGGI Besan noodles.
2. *Milk Products and Nutrition*: Continued investment in advertising for products like MILKMAID.
3. *Confectionery*: KITKAT and MUNCH posted high single-digit growth, leveraging youth engagement initiatives.
4. *Beverages*: NESCAFÉ reported high double-digit growth, backed by premiumization and increasing household penetration.
5. *Petcare Business*: Witnessed strong momentum in e-commerce with brands like Felix and Friskies.
### *Near-Term:*
- The near-term outlook remains cautious, given the *muted consumer demand* and high input costs, especially for commodities like coffee and cocoa. We may see this year muted growth of 1% and Profit growth of 13%. Considering muted growth current valuations of 65X PE is not favourable. All those holding since long time can add more during current fall near 2076 while Target for 3 years could be 3830 where some Profits can be booked.
### *Important Information for Investors:*
- *Dividend Policy*: Nestlé continues to pay significant dividends, with a payout of ₹10,846.8 million in the first six months.
- *Investment in Growth*: The company’s capital expenditure on property, plant, and equipment amounted to ₹12,823.2 million in the first half of FY25, indicating continued investment in capacity expansion.
- *ESG Initiatives: Nestlé India’s sustainability drive, including **biomass boilers* in key factories, supports its long-term environmental goals, appealing to investors focused on ESG.
- *Long-term growth* prospects are strong due to Nestlé's continuous focus on *innovation*, brand strength, and premiumization, coupled with growing e-commerce channels.
- The company's *expansion into nutraceuticals* with Dr. Reddy's partnership, and innovations like CERELAC with no refined sugar, position it well for the future. Overall 12% sales growth over the long term can be assumed along with high and consistent profitability.
In summary, Nestlé India continues to deliver stable performance despite external challenges, driven by innovation, brand strength, and an expanding e-commerce footprint. Investors focusing on long-term wealth may find Nestlé India to be a resilient option with growth opportunities in premium product categories.
Disclosure: Do not consider this document as a recommendation, this was created for educational purposes.
