MOSL: NESTLE INDIA-ANNUAL REPORT (Neutral)-Non-Maggi volumes continue to be tepid-Increasing cash and cash equivalents restricting RoCE improvement

​Nestle India (Annual Report): Non-Maggi volumes continue to be tepid; Increasing cash and cash equivalents restricting RoCE improvement

(NEST IN, Mkt Cap USD9.4b, CMP INR6301, TP INR6665, 6% Upside, Neutral)

Key takeaways from Nestle India's (NEST) CY16 annual report:

• Continued poor volumes in non-Maggi portfolio
  
• Blended realization growth lower than earlier years
  
• A&P to sales declines YoY, remains well below that of FMCG/food peers
  
• Continued moderate dividend payout restricts RoCE expansion, despite increasing balance sheet efficiency
  
• Maggi sales rise, but still below historical levels: NEST’s annual report highlighted disappointing segmental performances (these details are not disclosed in its quarterly results), particularly on the volumes front. Prepared dishes and cooking aids sales increased 74.9% YoY (primarily led by Maggi noodles) to INR23b in CY16 (24.2% of overall annual sales), but were 22% lower than INR29.6b recorded by the segment in CY14 (pre-Maggi crisis period). In its August 2016 analyst meet, management had admitted that there is still some residual stigma associated with this category due to rising competitive intensity and some people moving to other snacking options. While the market share is gradually recovering, the pace of recovery is slower – at 60%, its market share is considerably lower than the historical levels of 80%.