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Domestic sales emerge as a major growth driver

Nestle India Ltd., a subsidiary of Nestle S.A., is a food processing company, primarily into manufacturing of milk products and other food products such as beverages and cereals.

• Revenue grew 10.2% to Rs. 14,709cr in CY21, due to domestic sales which accounted for 95% of total revenue. Domestic sales growth is largely driven by increased volume and mix. Also, strong growth momentum in key brands supported revenue.

• EBITDA margin rose 60bps YoY to 23.2%. PAT for Q4CY21 was at Rs. 387cr, a YoY decline of 20.0%.

• The company’s diversified product portfolio and enhanced distribution network will continue to drive revenue. This along with increasing focus on e-commerce and new initiatives will enhance product penetration. We reiterate our BUY rating on the stock with a revised target price of Rs. 19,995 based on 60x CY23E adj. EPS.

Strong demand for major brands aids topline performance

Q4CY21 standalone revenue increased by 8.9% YoY to reach Rs. 3,739cr. Similarly, total sales and domestic sales for CY21 increased by 10.2% and 10.7% respectively. Domestic sales growth was largely driven by increased volume and mix. Strong growth momentum continued in Maggi Noodles due to increased availability. Key brands such as Kitkat, Munch and Nescafe Classic registered significant growth throughout the year. Growth in e-commerce channel was supported by new formats such as Quick Commerce and Click & Mortar. Export sales, however, registered decline, and reduced by 1.2% mainly due to lower coffee exports and a change in product mix.

One-off exceptional expense impacts PAT

In Q4CY21, company’s gross profit was reported at Rs. 2,133cr (vs. Rs. 2,028cr in Q4CY20). For the full year CY21, gross profit was at Rs. 8,390cr as compared to Rs. 7,676 cr in CY20. EBITDA improved by 12.2% to Rs. 3,592cr, and margin improved to 24.4%. However, PAT for Q4CY21 was at Rs. 387cr, a YoY decline of 20.0%. This is mainly due to an exceptional expense of Rs. 237cr incurred due to change in employee benefit pension plan and transfer of liabilities to the insurer. For CY2021, PAT rose to Rs. 2,145cr, registering an improvement of 3.0%. The company is focusing on achieving cost efficiencies and price hikes to offset the negative impact of commodity price inflation

Key highlights

• Rural market contributed around 20-25% of total sales aided by distribution expansion.

• Sales from innovative products was at 5% in CY21, an increase from 1.5% in 2016.

• The Board approved a final dividend of Rs. 65 per equity share, amounting to Rs. 6,267mn. The total dividend payout for 2021 is Rs. 200 per share.

Valuation

Nestle’s strong product portfolio, increasing popularity of e-commerce channel, new product launches and distribution drives led to revenue growth in CY2021. Expansion of product offerings and exploring new opportunities remain key growth drivers. The company also received approval from the government for its proposal under the PLI Scheme. This will provide impetus to the manufacturing initiatives. Reduced intensity of the pandemic, cost initiatives and improvement in volumes are expected to support company performance. Hence, we reiterate our BUY rating on the stock with a forward target price of Rs. 19,995 using a target multiple of 60x CY23E adj. EPS.

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