Annual Report Analysis
Story through keywords: The keywords in the annual report were innovations, delighting consumers, thrive not survive, harnessing cluster opportunities, micro targeting, capacity expansion, penetration-led volume and mix growth, consumer trust, volumes averaging c10% since 1QCY17, improvement in brand equity index, building new capabilities in organic products, asknestle.in, focusing on gender balance and retention and importantly corporate social responsibility including sustainability.
CY2019 performance showcased Nestlé’s bias for action and continued benefits of "strengthening the core" actions taken by Suresh Narayanan, CMD. Notable focus areas / enablers are – (1) cluster-based approach (drive penetration), (2) premiumisation through innovations (3.4% contribution to domestic sales), (3) marked improvement in sales and merchandising and (4) a sharp turnaround in Chocolates (segment revenue grew 17% with 16% volume growth). Although 7% volume growth in CY2019 was skewed towards Chocolates and Prepared dishes, we expect FY20 performance to be broad based – infant foods (turnaround in South India), beverages and chocolates (more in-home consumption, indulgences) and prepared dishes (consumers spending more time at home). Deflation in dairy prices in CY20 provides another leg to earnings growth. Our relative positive view on Nestlé’s financial performance is intact; HOLD reflects the requirement of lower multiples to turn more constructive.
New launches / relaunches / brand rejuvenations
* MAGGI Nutrilicious Atta Noodles
* CERELAC Ragi variant
* LACTOGEN 1
* KITKAT DESSERT DELIGHT
Segmental performance: Chocolates & Confectionary segment was the outperformer (+17% sales, +16% volume) with Prepared Dishes & Cooking Aid a close second (+13% sales, +10% volume). We expect moderation in Chocolates growth given out-of-home consumption getting impacted but at the same time Prepared Dishes to likely benefit from this. Growth construct for milk products & nutrition changed in CY2019; +9% growth was primarily price-led (+8%). We believe that this was to negate rising input costs and expect the segment to return to a more balanced volume-price construct. Beverages performance was a negative surprise – revenue declined 1% (-2% volume). However, we believe that consumers spending more time at home provide a great growth opportunity for the segment.
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