Key Rating Drivers & Detailed Description

Strengths:

Strong business risk profile, supported by leading position in several product categories, well-established brands and diversified revenue profile

Nestlé India is a leading player in the Indian FMCG industry, with an established market position in most product categories it has presence in. The company is a pioneer in the culinary segment, with a range of products under the Maggi brand. The company is among the top two players in most of its product categories: milk products and nutrition, beverages, prepared dishes and cooking aids, and chocolate and confectionery. In these segments, Nestle India benefits from its well-established brands.

Revenue is diversified, with 41% of the revenue generated from milk and nutrition products (dairy products and weaning foods), 11% from powdered and liquid beverages (instant coffee, iced tea and other beverage vending mixes), 32% from prepared dishes and cooking aids (the Maggi range), and around 16% from chocolates and confectionery (including Kit Kat and Munch) as of June 2022. The company has launched over 90 products since 2016, with around 20 projects in the pipeline. Revenue contribution from these products increased to 5.6% in June 2022 from 2.7% in 2017.

Continued technical support from Nestlé SA

Most of Nestlé India’s brands are part of the parent’s international portfolio. The company enjoys access to its parent’s proprietary technology and strong research and development capabilities. Switzerland-based Nestlé SA holds 62.76% stake in Nestle India, and is the world’s largest player in the food and beverages sector. Nestle India launched GERBER its global premium toddler nutrition brand in July 2022.

Healthy financial risk profile

The financial risk profile is robust, supported by strong operating cash flow and comfortable capital structure. Despite volatility in raw material prices, changes in product mix and prudent cost management have ensured stable operating margin at ~22%, resulting in sustained strong cashflow. Nestle’ India plans to incur capital expenditure (capex) amounting to Rs 5,000 crore till 2025 to further its product portfolio, set up new plants and for suitable acquisitions. Presently no data available on the funding mix but shall likely be funded through a combination of cash accrual and debt as (and when) required.

Weakness:

Susceptibility to intense competition

The domestic FMCG segment is highly competitive with the entry of new players, including multinationals, in various divisions such as instant noodles, packaged foods, beverages, chocolates and confectionary. Competition keeps increasing owing to aggressive product launches, evolving consumer preferences and strong marketing strategies adopted by players.

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