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MOSL: NESTLE INDIA (Neutral)-Strengthening building blocks for long-term growth

NESTLE INDIA: Strengthening building blocks for long-term growth

(NEST IN, Mkt Cap USD16.3b, CMP INR11982, TP INR11510, 4% Downside, Neutral)

 

Nestle India (NEST) hosted its analyst meet on 9th Aug'19 to share a holistic view on its business. We thoroughly analyzed the details revealed by management and were particularly impressed with its best-in-industry growth strategy. Key takeaways:

• After many years of lull (and an actual sharp decline in CY15 due to the Maggi crisis), NEST's distribution reach is now targeted to be increased to 5.5m-6m outlets from the current 4.6m outlets.
• The company has launched 61 products over the past three years with a remarkable success rate of 70% (v/s industry's success rate of 10%-15% for new launches). These products now contribute ~3.7% of sales. Notably, the timeline for new product innovation has come down from 18-24 months earlier to 3-9 months.
• Ad-spend growth of 18% YoY for 1HCY19 was very impressive at a time when most consumer peers curtailed spending in Jun'19. This especially comes after an even more impressive 40% plus ad-spend growth in CY18.
• Most segments reported strong top-line growth in 1HCY19. Revenue for Milk and Nutrition was up 8.5% YoY (volumes: +8.1% YoY), while that for Prepared Dishes (Maggi) increased 15.0% YoY (volumes: +12.9% YoY). Chocolates - aided by category revival and higher market share in Kit Kat - grew by an impressive 22.5% YoY in value terms and 22.8% YoY in volume terms. Beverage was the only underperforming category, with muted value and volume growth of 4.2% and 3.4% YoY, respectively.
• Cluster-based approach (15 zones) is helping the company to challenge anecdotal and historical thinking, and in turn, fuel growth.