Home / Markets / Mark To Market /  Key takeaways from Nestle India’s CY20 annual report

The covid-19 disruptions notwithstanding, Nestle India Ltd’s shares have appreciated by around 24% in calendar 2020. The fast-moving consumer goods’ (FMCG) company follows a January-December financial year.

The company’s total operating revenues in 2020 increased by almost 8% over the same period last year to 13350 crore. Among the segments, in 2020, milk products & nutrition contributed 46.3% of operating revenues. Prepared dishes and cooking aids, powdered and liquid beverages, and confectionery accounted for 29.4%, 11.1% and 13.2% of the last year’s revenues, respectively.

Nestle India derives a large portion of its revenues from domestic sales and in 2020, this stood at 94.7% of overall revenues. While domestic sales in 2020 increased by 8.5% year-on-year in 2020, the covid-19 lockdown adversely impacted performance in the June quarter when sales grew by just 2.6% . As such, domestic sales increased by 10-11% year-on-year in the remaining three quarters. Total domestic volume for 2020, increased by 5.7% versus previous year. Contribution from e-commerce to domestic sales has increased to 3.7% in 2020 from 0.6% in 2016.

Further, the rate of new launches is encouraging. Over the last five years, the company has launched more than 80 new products, out of which, ten were in 2020. Analysts from Motilal Oswal Financial Services Ltd said, “The pace of new launches, while lower than preceding years due to the management’s focus on the core, amid the Covid-19 pandemic, was still healthy compared to peers."

The brokerage firm added, “NWC (net working capital) days worsened from negative three days in CY19 to nil days in CY20 and by four days on a year-end basis from negative two days to two days, with inventory days increasing slightly."

Analysts from Dolat Capital Market Pvt. Ltd said in a report on 16 April, “Nestle India has been rapidly enhancing its distribution reach with a total reach of 4 million outlets in 2016 to 4.7 million outlets in 2020. Direct reach constitutes 30% of total distribution reach."

In its annual report, Nestle said, “From 2005 to 2020, for every ton of production, your Company reduced the usage of energy by around 48%, water usage by around 52%, generation of wastewater by around 55% and reduction in specific direct GHG emissions by 53%."

The company plans to invest 2600 crore over the next three-four years to augment its existing manufacturing capacities.

To be sure, the expensive valuations of Nestle India shares suggest investors are capturing a good portion of the optimism into the price. “Valuations are expensive at 59 times CY22 estimated earnings per share, thus, preventing us from turning constructive on the stock," point out Motilal Oswal analysts in a report on 16 April.

According to Dolat Capital, “We remain optimistic on Nestle’s performance due to its strong supply chain, distribution initiatives, new innovative launches and focused marketing campaigns. However, two thirds of Nestle’s business comes from urban. Hence, Out of Home category remains a concern due to new localized lockdowns restricting mobility."

So far in 2021, the Nestle India stock has declined by around 7%.

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