Nestle India Ltd:Annual Report 2023-24 Analysis

Nestle India Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Nestlé India Ltd. was incorporated in India in 1956. However, its roots trace back to 1866 when Henri Nestlé first developed Farine Lactée, a life-saving infant food, in Vevey, Switzerland.

Headquarters Location and Global Presence:

Nestlé India’s headquarters are located in Gurgaon, Haryana, India. Nestlé S.A., the parent company, is headquartered in Vevey, Switzerland, and has a significant global presence with operations in nearly every country worldwide.

Company Vision and Mission:

While not explicitly stated publicly as a single sentence, Nestlé India’s vision is aligned with the global Nestlé vision: “Good food, good life”. Their mission encompasses providing consumers with high-quality, nutritious, and tasty food products, promoting healthier lifestyles, and contributing to the communities where they operate.

Key Milestones in Their Growth Journey:

• 1912: Nestlé begins trading in India as a branch of Nestlé Anglo Swiss Condensed Milk Company
• 1956: Incorporation of Food Specialities Limited (later renamed Nestlé India Ltd.)
• 1961: Establishment of the first factory in Moga, Punjab
• 1986: Launch of Maggi instant noodles in India, a turning point for the company’s growth.
• 1990s onwards: Expansion into various categories like chocolates, beverages, and dairy products.
• 2015: Faced a major crisis with the Maggi noodles ban, but successfully relaunched the product.

Stock Exchange Listing Details and Market Capitalization:

Nestlé India Ltd. is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The market capitalization fluctuates but generally places it among the top companies in India.

Recent Financial Performance Highlights:

Nestlé India consistently demonstrates strong financial performance. Recent financial reports usually highlight:

• Steady revenue growth, driven by both volume and value increases.
• Healthy profit margins, reflecting efficient operations and cost management.
• Strong cash flow generation, supporting investments and shareholder returns.

Management Team and Leadership Structure:

Nestlé India has a well-defined leadership structure, with a Managing Director overseeing the operations. The board of directors consists of experienced professionals with diverse backgrounds.

Notable Awards or Recognitions:

Nestlé India has received awards and recognitions for various aspects of its business, including:

• Sustainability and corporate social responsibility initiatives.
• Innovation in product development.
• Quality and safety standards in manufacturing.
• Human resource practices and employee engagement.

Their Products #

Complete Product Portfolio with Categories:

• Milk Products and Nutrition: Milkmaid, Everyday Dairy Whitener, Nestlé a+ Milk, Nestogen, Lactogen, Cerelac, Nangrow, Resource
• Prepared Dishes and Cooking Aids: Maggi Noodles, Maggi Sauces, Maggi Masala-ae-Magic
• Beverages: Nescafé, Nescafé Classic, Nescafé Sunrise, Nescafé Gold, Milo
• Chocolates and Confectionery: KitKat, Munch, Milkybar, Nestlé Classic, Polo
• PetCare: Purina Pro Plan, Purina Friskies, Purina Supercoat

Flagship or Signature Product Lines:

• Maggi: Instant noodles and sauces are synonymous with Nestlé in India.
• Nescafé: A leading brand in the instant coffee segment.
• KitKat: A globally recognized chocolate brand with a strong presence in India.

Manufacturing Facilities and Production Capacity:

Nestlé India has several manufacturing facilities across India, located in states like Punjab, Haryana, Goa, Karnataka, and Uttarakhand. Specific production capacities for each product line are not publicly disclosed, but the company invests in expanding capacity to meet growing demand.

Quality Certifications and Standards:

Nestlé India adheres to stringent quality standards and has obtained various certifications, including:

• ISO 9001 (Quality Management System)
• ISO 22000 (Food Safety Management System)
• HACCP (Hazard Analysis and Critical Control Points)

Recent Product Launches or R&D Initiatives:

Nestlé India continually launches new products and undertakes R&D initiatives to cater to evolving consumer preferences. These include:

• New variants of existing product lines (e.g., new Maggi flavors).
• Healthier options with reduced sugar or added nutrients.
• Products targeting specific dietary needs (e.g., gluten-free options).
• Expansion into new categories, such as plant-based products.

Primary Customers #

Geographic Markets (Domestic vs. International):

Nestlé India primarily focuses on the domestic Indian market. While some exports may occur, they constitute a small percentage of overall revenue.

Major Client Segments:

• Residential Consumers: The primary target audience for most of Nestlé’s consumer products.

Distribution Network and Sales Channels:

Nestlé India has a wide distribution network spanning urban and rural areas:

• Retail Outlets: Supermarkets, grocery stores, convenience stores, and kirana stores.
• Wholesalers and Distributors: A network of partners to reach smaller retailers.
• Online Retail: E-commerce platforms and Nestlé’s own online store.
• Institutional Sales: Hotels, restaurants, and catering companies.

Major Competitors #

Direct Competitors in India and Globally:

• Hindustan Unilever Limited (HUL): A major FMCG player with a diverse product portfolio.
• ITC Limited: A diversified conglomerate with a growing presence in the food sector.
• Britannia Industries Limited: A leading biscuit manufacturer with a presence in other food categories.
• Parle Products: A major player in the biscuits and confectionery market.
• Mondelez International: A global confectionery giant.

Comparative Market Share Analysis:

Nestlé India holds a leading market share in several categories, including instant noodles, coffee, and some dairy segments. However, market shares vary depending on the specific product category and geographic region.

Competitive Advantages and Disadvantages:

• Advantages: Strong brand reputation, extensive distribution network, established manufacturing capabilities, and a focus on quality.
• Disadvantages: Higher price points compared to some local competitors, reliance on specific product categories (e.g., Maggi), and vulnerability to regulatory changes.

How They Differentiate from Competitors:

Nestlé India differentiates itself through:

• Premium quality and perceived brand value.
• Focus on nutrition and health.
• Innovation in product development.
• Strong marketing and advertising campaigns.

Future Outlook #

Expansion Plans or Growth Strategy:

Nestlé India is focused on:

• Expanding its product portfolio into new categories.
• Strengthening its presence in rural markets.
• Investing in digital channels and e-commerce.
• Improving operational efficiency and cost optimization.

Sustainability Initiatives or ESG Commitments:

Nestlé India has committed to various sustainability initiatives, including:

• Reducing its environmental footprint through waste reduction, water conservation, and energy efficiency.
• Sourcing raw materials responsibly and supporting sustainable agriculture practices.
• Promoting healthier lifestyles through nutritious products and consumer education.

Industry Trends Affecting Their Business:

• Increasing consumer awareness of health and wellness.
• The growing popularity of convenience foods and ready-to-eat meals.
• The rise of e-commerce and online grocery shopping.
• The increasing demand for sustainable and ethically sourced products.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics: #

• Sales exhibited a CAGR of 11.1% from 2018 to 2023.
• Profit after Tax (PAT) showed a CAGR of 13.3% over the same period.
• Operating Cash Flow as a percentage of Sales was 17.2% in fifteen months ended on March 2024.
• Capital Expenditure as a percentage of Sales was 7.7% in fifteen months ended on March 2024.
• Return on Average Equity was 108.5% for the fifteen months ended March 31, 2024.

Business Segment Performance: #

• The Milk Products and Nutrition segment registered strong growth, contributing 40.7% to total sales.
• Prepared Dishes and Cooking Aids recorded strong growth, contributing 30.4% to total sales, with India becoming the largest Nestlé market globally for MAGGI.
• Confectionery was a main driver of growth, contributing 16.5% to total sales, with India becoming the second-largest market for KITKAT globally.
• Powdered and Liquid Beverages recorded robust performance, contributing 12.4% to total sales, with NESCAFÉ Classic leading category recruitment.
• The Out-of-Home business was one of the fastest-growing, driven by portfolio transformation and expansion into tier-1 towns.
• E-commerce contributed 6.8% of total sales, with significant growth in quick commerce.
• The RUrban focus resulted in sales growth and expansion, achieving a milestone of reaching over 200,000 villages.

Major Strategic Initiatives and Their Progress: #

• Your Company is poised to invest approximately H 7,500 crore between 2020 and 2025 to develop new capabilities and expand existing ones.
• Announced setting up its tenth factory in Odisha.
• The launch of over 140 new products in the past eight years, with a focus on science-led nutrition, millet-based products, and plant-based protein options.
• MIDAS (Multi-Intelligence Data Analytics System) implementation contributed to about half a percent of the Company’s growth.
• Expansion of direct coverage footprint, crossing the milestone of over 200,000 villages, and the implementation of the ‘Retailer Self-Ordering Application’ - NesMitra.

Risk Landscape Changes: #

• Identified risks include inflationary pressures, evolving consumer preferences, the presence of counterfeit products, food safety and quality, data security and cyberattacks, and climate change impacts on the supply chain.
• Mitigation strategies include a comprehensive commodity procurement process, cost optimization, innovation in product offerings, enforcement mechanisms against counterfeit products, robust quality and safety processes, and enhanced cybersecurity measures.

ESG Initiatives and Metrics: #

• Your Company has achieved plastic neutrality since 2020.
• Reduction of virgin plastic usage by approximately 1,800 metric tons over the last two years.
• Eight factories are now entirely coal-free.
• Anaerobic biodigesters installed in dairy farms to reduce methane emissions.
• Approximately 109 large biodigesters and 3,325 small biodigesters have been installed in 24 districts across Punjab and Haryana and more than 550,000 trees were planted.
• 55.9% reduction in factory emissions over the past six years (compared to the 2018 baseline).
• Reduced water withdrawal intensity by 27.4% compared to the 2018 baseline.
• Over the last 15 years (2008-2024), your Company has, on an average, reduced energy usage by around 29% per ton of production, water usage by around 46% per ton of production, generation of wastewater by around 60% per ton of production, and specific direct and indirect greenhouse gas emissions by 61% per ton of production.
• Societal interventions have reached approximately 14 million beneficiaries in areas of rural development, education, nutrition awareness, water and sanitation, environment, and livelihood.

Management Outlook: #

• The outlook is that of paradox. Your Company blending elements of robust economic growth and a dynamic.
• The evolving consumer trends present challenges and opportunities across all segments, with increased sales coming from innovation products.
• Focus on RUrban market penetration and premiumization is expected to continue driving growth.
• Judicious mix of internal and external funding sources will be used for the ongoing capital expenditure.

Detailed Analysis #

Financial Position: Nestlé India Limited Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity #

(INR in millions)

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets (FY 2023-24 vs. FY 2022): Increased by 28.1%, primarily due to an increase of 392.8% in Capital work-in-progress.
• Capital work-in-progress(FY2023-24 vs FY2022): The increase in capital work in progress is consistent with the increase in capacity in all business categories, the setting of the greenfield manufacturing facility and investment in sustainability iniatives.
• Other Equity (FY 2023-24 vs. FY 2022): Increased by 37.3%, with retained earnings contributing substantially.
• Current Liabilities (FY 2023-24 vs. FY 2022): Increased by 28.4%, mainly from Payables, Capital Expenditure and other financial liabilities.

Working Capital Trends #

• Current Ratio (FY 2023-24): 0.9, decreased from 1.1 in FY 2022.

Debt Structure and Maturity Profile #

(INR in million)

Total Borrowings were primarily composed of unsecured deferred VAT liabilities.

Off-Balance Sheet Items #

• Contingent liabilities related to tax matters and other claims were reported, but no quantifiable off-balance sheet arrangements were specified in the provided financials.

Nestlé India Limited: Financial Analysis #

Revenue Breakdown by Segment/Geography #

• Prepared Dishes and Cooking Aids: 30.4% of total sales. Focus on product mix, pricing, and volume growth for key products like MAGGI Noodles and Masala-ae-Magic. India is the largest market for MAGGI globally.
• Milk Products and Nutrition: 40.7% of total sales. Strong growth, aided by e-commerce, despite commodity price fluctuations.
• Powdered and Liquid Beverages: 12.4% of sales, with robust performance driven by in-home portfolio like Nescafé.
• Confectionery: 16.5% of total sales, a main growth driver, fueled by new product launches, increased media, and distribution. Kitkat is performing very well, with India becoming its second largest market.
• Geographic: Domestic sales were INR 233,006.2 million. Export sales were INR 9,748.6 million.

Cost Structure Analysis #

• Cost of Materials Consumed: INR 102,168.8 million.
• Employee Benefit Expenses: INR 23,360.6 million.
• Finance Costs: INR 1,454.9 million.
• Other Expenses: INR 54,404.7 million, including significant spending on finished goods handling, transport, distribution, advertising, and sales promotion.

Margin Analysis #

• Operating Profit Margin: 22.0% (Profit from Operations/Sale of Products).
• Net Profit Margin: 16.2% (Profit After Tax/Sale of Products).

Non-Recurring Items #

• Exceptional Items reported, a net credit of INR 43.7 million, comprised a charge of INR 972.2 million(past service cost and settlement loss) related to the unfunded defined benefit pension plan and write back of INR 1,015.9 million of an indirect tax matter provision.

EPS Analysis #

• Earnings Per Share (Basic & Diluted): INR 40.79. The share value was subsequently split.

Cash Management: A Financial Analysis of Nestlé India Limited #

Cash Flow Analysis #

Operating Cash Flow (OCF) #

• FY 2023-24 (15 months): 41,748 million INR
• FY 2022 (12 months): 27,374 million INR
• Profit Before Tax: FY 2023-24: 52,888.7 million INR, FY 2022: 32,559.7 million INR
• Adjustments included depreciation, impairment, interest, and changes in working capital.
• Income taxes paid (net): FY 2023-24: (12,987.6) million INR, FY 2022: (8,411.5) million INR

Investing Cash Flow (ICF) #

• FY 2023-24 (15 months): (12,374.2) million INR
• FY 2022 (12 months): (3,917.3) million INR
• Purchase of property, plant, and equipment: FY 2023-24: (18,826.7) million INR, FY 2022: (5,499.2) million INR
• Proceeds from Sale of Property, Plant & Equipment: FY 2023-2024: 43.7 million INR, FY 2022: 92.2 million INR
• Proceeds from Sale/Redemption/Maturity of Investments: FY2023-24 :-, FY 2022: 171.1 million INR
• Proceeds from Tax free Bonds and Investments FY 2023-24: 2,837.9 million INR, FY2022: 83.7 million INR
• Net consideration paid for Acquisition of Pet Food Business :FY 2023-24:-, FY 2022 :(1,421.3) million INR

Financing Cash Flow (FCF) #

• FY 2023-24 (15 Months): (31,349.2) million INR
• FY 2022 (12 Months): (21,227.4) million INR
• Dividends Paid: FY2023-24: (30,081.8) million INR, FY2022: (20,247.3) million INR
• Interest on bank overdraft and others :FY2023-24 : (16.1) million INR, FY 2022 : (20.4) million INR
• Interest on lease liabilities: FY2023-24 : (243.9) million INR, FY 2022 : (160.7) million INR

Working Capital Management Efficiency #

• Debtors Turnover Ratio: FY 2023-24: 78.9, FY 2022: 93.8. A decrease is observed.
• Inventory Turnover Ratio: FY 2023-24: 9.7, FY 2022: 9.5. Slightly improved.

Capex Analysis #

• Total Capital Expenditure: FY 2023-24: 18,783 million INR, FY 2022: 5,407 million INR. A significant increase is evident.
• Capex as % of Sales: FY 2023-24: 7.7%, FY 2022: 3.2%. A large increase is observed.

Dividend Trends #

• Dividend per share (DPS): FY 2023-24: Interim Dividends: 167.0 (Face Value H 10.00), 7.00(Face value H 1.00) , Proposed - Final Dividend: 8.50, FY 2022: Interim dividends 145.0.
• Dividends included both interim and a proposed final dividend.
• Total Dividends Paid: FY2023-24: 22,850.6+7231.2 million INR, FY2022: 6,267 million INR

Liquidity Position #

• Current Ratio: FY 2023-24: 0.9, FY 2022: 1.1. A decrease is observed.
• Cash and Cash Equivalents: Decreased from 9,964.0 million INR in FY2022 to 7,988.5 million INR at the end of FY2023-24.

Financial Analysis: Key Performance Indicators (KPIs) #

Profitability Ratios (3-Year Trends) #

• Return on Average Equity (ROE): 2023-24: 108.5%, 2022: 108.5%, 2021: 111.0%. The ROE has remained very high, but shows a slight downtrend.
• Net Profit Margin: 2023-24: 16.2%, 2022: 14.2%, 2021: 14.4%. The net profit margin has improved in the current, extended, fiscal year.
• Operating Profit Margin: 2023-24: 22.0%, 2022: 20.0%, 2021: 22.0%. Operating margins had improved in the most current, extended, fiscal year.

Liquidity Metrics #

• Current Ratio: 2023-24: 0.9, 2022: 1.1. The current ratio decreased, indicating a slight reduction in the ability to cover short-term liabilities with short-term assets.

Efficiency Ratios #

• Inventory Turnover Ratio: 2023-24: 9.7, 2022: 9.5. The inventory turnover has remained fairly stable.
• Debtors Turnover Ratio: 2023-24: 78.9, 2022: 93.8. The debtors turnover ratio decreased in the current year.
• Net Fixed Asset Turns: 2023-24 show that the turns have improved.

Industry Comparison & Deviations: #

• The Company’s PBT margin is significantly higher than the average of its peers.
• GLA payment is 4.5% in comparison to 6.5% of its peers.

Important Note: #

A full comparison with industry averages cannot be definitively provided as the document does not provided industry benchmarks. All the ratios for the current period (2023-24) are not directly comparable with the previous years due to it being a 15-month period. Some ratios are annualized for improved comparability.

Nestle India Limited Business Segment Analysis #

Revenue and Profitability #

• Prepared Dishes and Cooking Aids: Contributed 30.4% to total sales, recording strong growth.
• Milk Products and Nutrition: Contributed 40.7% to total sales, registering strong growth.
• Powdered and Liquid Beverages: Contributed 12.4% to total sales with robust performance.
• Confectionery: Contributed 16.5% to total sales, and remained one of the main drivers of growth.
• Out-of-Home: One of the fastest-growing businesses.
• Overall Sales: Witnessed double-digit growth. E-commerce contributed 6.8% of sales.
• Profit from Operations: Increased to H 53,418 million (22.0% of sales) for the 15-month period.
• Profit after Tax: Stood at 16.2% as % of sales.
• CAGR (2018-2023): Sales: 11.1%, PAT: 13.3%, Pre-GLA profit from operations: 16.7%.

Market Share and Competitive Position #

• MAGGI: India became the largest Nestlé market globally for MAGGI.
• KITKAT: India became the second-largest market globally for KITKAT.
• NESCAFÉ: Strengthened market leadership with the highest-ever yearly increase in household penetration and market share.

Key Products/Services Performance #

• MAGGI Noodles and Masala-ae-Magic: Strong growth, supported by consumer engagement and market presence.
• KITKAT: Strong growth, driven by innovations like KITKAT Butterscotch and a premium range.
• MUNCH: Performed well, with innovations like MUNCH Max Brownie and MUNCH Fruity.
• NESCAFÉ Classic, Sunrise, and GOLD: Delivered strong double-digit growth.
  • NESCAFÉ Sunrise: Became one of the top 10 brands for Nestlé India.
• MILKMAID: Website attracted over 7.2 million visits.
• Health Science: Resource Fiber Choice recognized as ‘Best Health & Wellness Product of the Year’.
• Petcare: The newly launched wet food Purina Felix contributed to growth.

Geographic Distribution and Market Penetration #

• RUrban Markets: Accelerated growth, expanded direct coverage to over 200,000 villages.
• Exports: Increased demand in key markets and expansion to new markets.
• NESCAFÉ Sunrise: Gained traction in Singapore and Taiwan, with exports to Canada.

Capital Expenditure #

• Capital expenditure of H18,783 for the fifteen months ended 31st March 2024.
• Capital expenditure plans of H5,000 crores are planned across factories.

Operational Efficiency #

• Cost Optimization: Addressed fluctuating commodity prices through cost optimization and value chain efficiencies.
• MIDAS (Multi-Intelligence Data Analytics System): Contributed to about half a percent of growth through improved forecasting and decision-making.
• Digitalization: Sanand factory operates as a completely digitized and paperless facility.
• Transport Routing: AI-powered optimization reduced carbon emissions.
• Distribution Centers: Modernized for faster customer service.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Announced tenth factory in Odisha, with a total proposed investment of H 7,500 crores between 2020 and 2025.
  • Launched over 140 new products in the past eight years.
  • Expanded infrastructure, portfolio, and on-ground presence in rural and urban areas.
  • Accelerated e-commerce growth, especially in quick commerce.
  • Focused on portfolio transformation, premiumization, channel prioritization, and new customer acquisition for Out-of-Home Business.
  • MIDAS utilized data and analytics.
• Challenges: Escalating food inflation and volatile commodity prices, especially in coffee and cocoa.

Risk Framework: Nestlé India Limited Analysis #

Strategic Risks #

• Severity: High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Product portfolio recalibration and rejuvenation (over 140 new products in 8 years).
  • Focus on science-led nutrition, millet-based, and plant-based products.
  • RUrban market expansion (direct coverage exceeding 200,000 villages).
  • Accelerated growth in Out-of-Home and E-Commerce.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: Significant capital expenditure (₹5,000 Crores and ₹894.1 Crore) to enhance capacity and build new production lines. Plans for a “judicious mix of internal accruals and secured/unsecured borrowings.”

Operational Risks #

• Severity: Medium to High
• Likelihood: Medium
• Trend: Stable to Increasing
• Mitigation Strategies:
  • Stringent quality control measures.
  • Adherence to Nestlé Responsible Sourcing Standard (NRSS).
  • Digitization of the value chain.
  • Investment in sustainable logistics (CNG/LNG, electric vehicles, railway usage).
• Control Effectiveness: Moderately effective
• Potential Financial Impact: Compromised product quality can negatively impact consumer trust, brand loyalty, and reputation.

Financial Risks #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Proactive commodity procurement with price monitoring.
  • Cost optimization and efficiency improvements.
  • Hedging.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: Cost-saving initiatives implemented to offset cost increases, aiming for savings of “about 1.5% of the Company’s annual sales each year.”

Compliance/Regulatory Risks #

• Severity: Medium to High
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies:
  • Internal audit system and compliance monitoring.
  • Regular review of compliance reports by the Board.
  • Employee training on relevant regulations.
  • Engagement with regulatory authorities.
  • Maintenance of certifications like ISO standards.
• Control Effectiveness: High
• Potential Financial Impact: Not quantified.

Emerging Risks #

Data Security and Cyber Attacks #

• Severity: High
• Likelihood: Medium and increasing
• Trend: Increasing
• Mitigation Strategies:
  • ISO 27001:2022 certification for information security.
  • Implementation of policies, standards, and procedures for information security.
  • Regular employee training on cybersecurity threats.
  • Disaster recovery plans.
• Control Effectiveness: Potentially effective
• Potential Financial Impact: Not quantified.

Climate Change Risk #

• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Clear roadmap to address climate concerns.
  • Eight factories are entirely coal-free.
• Control Effectiveness: Moderate
• Potential Financial Impact: Mitigation through a shift to renewable energy sources.

Fake and Counterfeit Products #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies:
  • “Swad Ke Saath, Quality Ka Bhi Bharosa Pao. Khao Toh MAGGI Noodles Khao” campaign
  • Commissioners by the Court.
• Control Effectiveness: Moderate
  • Potential Financial Impact: Not Quantified.

Strategic and Management Analysis of Nestlé India Limited #

Long-Term Strategic Goals and Progress #

• Nestlé India is focusing on sustained growth and innovation, with a commitment to “Make in India,” exemplified by the establishment of its tenth factory in Odisha.
• Planned investments of approximately ₹7,500 crore between 2020 and 2025 aim to develop new capabilities and expand existing ones, indicating a long-term growth strategy.
• The sub-division/split of equity shares of face value of H10 to H1 represents long-term goal of affordability and participation of investors at large.
• The Company recorded the highest growth in nine year aided by strong growth of the core portfolio and innovation.
• Societal interventions reached ~14 million beneficiaries, aligning with long-term goals of community impact and sustainable practices.
• The Company delivered ‘performance with Pride’ with its 5 P’s - Purpose, People, Partnership, Planet and Performance.

Competitive Advantages and Market Positioning #

• Nestlé India holds a strong market position, becoming the largest Nestlé market globally for MAGGI and the second-largest for KITKAT.
• A 112-year legacy signifies a strong brand reputation and consumer trust, providing a competitive edge.
• RUrban market focus, reaching 200,000 villages, demonstrates a commitment to penetrating under-served markets and expanding distribution.
• The company’s Return on Average Equity exceeds that of several listed competitors, demonstrating superior capital efficiency.
• The company’s Pre-GLA Profit from Operations has shown consistent growth, with a CAGR of 16.7% from 2018 to 2023

Innovation Initiatives and R&D Effectiveness #

• The launch of over 140 new products in the past eight years demonstrates a strong focus on innovation.
• A significant portion of 2023 sales was attributed to innovative products, indicating successful R&D translation into revenue.
• Initiatives like MIDAS (Multi-Intelligence Data Analytics System) are driving data-driven decision-making, indicating investment in technological innovation.
• Introduction of millet-based and plant-based protein products, along with winning the ‘Best Industry - Product Innovation for Mainstreaming Millets Award’, positions the Company well in emerging health-conscious consumer segments.

M&A Strategy and Execution #

• Nestlé India and Dr. Reddy’s Laboratories Limited entered into a definitive agreement to form a joint venture (JV) for bringing innovative nutraceutical brands. Nestlé India will hold 49% in JV.
• The slump sale of the Nestlé Business Services (NBS) Division to a related party (Purina PetCare India Private Limited, later renamed Nestlé Business Services India Private Limited) for ₹798 million suggests a strategic restructuring.

Management’s Track Record in Execution #

• The increase of women in the mangagerial positions by 2.5%, having 50% women representation in the Board of Directors, indicates commitment to fostering Diversity, Equity and Inclusion (DE&I).
• Consistent double-digit sales growth across all categories and achievement of highest growth of core portfolio in the past nine years reflect management’s ability to navigate market challenges.
• Successful expansion of the Out-of-Home business and e-commerce channels shows adaptability to evolving consumer behaviors.
• The Company’s endeavour and objective is to remain fully transparent in its transactions, given its high standards of Governance.

Capital Allocation Strategy #

• Significant capital expenditure plans of approximately ₹5,000 crore over the next three to four years, targeting capacity expansion, productivity improvements, and sustainability initiatives.
• The setup of a tenth greenfield manufacturing facility in Odisha with an initial outlay of ₹894.1 crore indicates a focus on long-term growth and capacity building.
• Use of secured/ unsecured borrowings, and potential external commercial borrowings from Nestlé group entities, points to a mixed financing approach.

Organizational Changes and Their Impact #

• The re-constitution of various board committees (Audit, Stakeholders Relationship, CSR, Nomination and Remuneration, Risk Management and Sustainability Initiatives) suggests an ongoing effort to optimize governance structures.
• Appointment of new Directors to the board
• Change in financial year from 1 st January to 31 st March

ESG Framework: Nestlé India Limited Analysis #

Environmental Metrics and Targets #

• Energy Consumption Reduction: Factories reduced energy usage by approximately 29% per ton of production over the last 15 years (2008-2024).
• Water Usage Reduction: Factories reduced water usage by approximately 46% per ton of production over the last 15 years. Wastewater generation was reduced by around 60% per ton of production over the last 15 years.
• GHG Emissions Reduction: Specific direct and indirect greenhouse gas emissions were reduced by 61% per ton of production over the last 15 years. A 55.9% reduction in emissions over the past six years (compared to the 2018 baseline) was achieved across all factories.
• Scope 1 emissions were at 231,324 metric tons of CO2 Equivalent.
• Renewable Energy: Eight factories are entirely coal-free. Biomass boilers have been installed in Nanjangud, Moga, and Sanand factories.
• Water Conservation: Water withdrawal intensity was reduced by 27.4% compared to the 2018 baseline. Zer’Eau technology in Moga and Samalkha factories recycles water extracted from milk.
• Packaging Waste: ~25,600 MT of plastic packaging was responsibly managed, exceeding the EPR target of ~23,000 MT. Approximately 1,800 metric tons of virgin plastic have been eliminated over the past two years.
• Sustainable Logistics: Railway usage for transportation increased from 0.2% to 6% over the past three years, and payload utilization increased from 90.3% to 93.7% between 2021 and 2023.

Social Responsibility Programs #

• Project Jagriti: Reached over 12.7 million beneficiaries, focusing on health, hygiene, and nutrition education.
• Nestlé Healthy Kids Programme: Reached over 600,000 adolescents and 56,000 parents across 26 states and union territories, promoting healthy lifestyles.
• Project Jigyasa: Set up science labs and libraries in 20 schools, promoting hands-on science education.
• Project Vriddhi: Impacted around 18,000 beneficiaries across 14 villages, focusing on clean water access, water-saving irrigation, nutrition awareness, farm productivity, and digital literacy.
• Project Serve Safe Food: Trained around 68,500 street food vendors in safe food handling practices across 26 states and 4 union territories.
• Project Hilldaari: Diverted approximately 15,700 MT of waste from landfills and achieved 84% source segregation across 69,700 collection points.
• Water and Sanitation: Constructed 300 clean drinking water facilities and equipped over 1,000 schools with sanitation facilities, benefiting around 320,000 girl students.
• CSR Expenditure: Over 2% of average net profits of the previous three financial years spent on CSR.
• Employee Wellbeing: Over 3600+ employees have used LinkedIn. 1,500+ employees have been trained in digital literacy and 100 members are part of internal mentor network.

Governance Structure and Effectiveness #

• Board Composition: As of March 31, 2024, the Board had a diverse mix, with 50% women directors, including Independent Non-Executive Directors.
• Board Committees: Includes Audit, Stakeholders Relationship, Corporate Social Responsibility, Nomination and Remuneration, and Risk Management and Sustainability Initiatives Committees.
• Compliance: Affirmed compliance with the Nestlé India Code of Business Conduct by Board Members and Senior Management.
• Risk Management: A Risk Management and Sustainability Initiatives Committee oversees risk assessment and mitigation, including sustainability initiatives.
• Audit Committee’s Approval: The Audit Committee has approved the related party transactions from time to time.

Sustainability Investments and ROI #

• Capital Expenditure: Investment is planned in renewable energy projects, water conservation, and sustainable sourcing.
• Tenth factory is set up in Odisha and Planned an investment of approximately H 7,500 crore between 2020 and 2025

Regulatory Compliance and Future Preparations #

• Compliance: Compliant with applicable Secretarial Standards (SS-1 and SS-2), Listing Regulations, and other statutory requirements.
• Plastic Waste Management: Compliant with Plastic Waste Management Rules, registered as a ‘Brand Owner,’ and ensures 100% adherence to regulations.
• Future Preparations: The Company has robust monitoring frameworks and governance councils in place to address climate concerns and sustainability goals, including transitioning to recyclable packaging and reducing emissions.

Future Outlook: Strategic Analysis #

Management Guidance and Assumptions #

• Double-digit sales growth is expected.
• Continued focus on RUrban markets with tailored products and expanded direct coverage.
• E-commerce contribution is expected to continue its upward trajectory.
• Planned introduction of India-centric products and nutrition solutions.
• Ongoing investments and assessments towards environmental goals (coal-free factories, methane reduction).
• Royalty payments will continue at 4.5%, net of taxes.

Market Growth Forecasts #

• India is the largest global market for MAGGI.
• India is the second-largest global market for KITKAT.
• Out-of-Home business is a fast-growing segment in India.
• Significant market opportunity identified for plant-based products.
• NESPRESSO launch planned by the end of 2024.

Planned Strategic Initiatives #

• Capacity expansion planned, including new product lines and sustainability initiatives.
• A tenth greenfield manufacturing facility is being set up in Odisha.
• Recalibration and rejuvenation of the product portfolio.
• Continued launch of millet-based products.
• Expansion of direct coverage in RUrban markets, targeting over 200,000 villages.
• Focused innovation on science-led nutrition solutions, millet-based products, and plant-based protein options.
• Continued digitalization efforts focusing on D2C sales, automation, e-commerce, and consumer insights. Integration of Multi-Intelligence Data Analytics System (MIDAS).
• Accelerated installation of anaerobic bio-digesters in dairy farms to reduce methane emissions.
• Joint venture with Dr. Reddy’s Laboratories to manufacture and commercialize nutraceutical brands.

Capital Expenditure Plans #

• Approximately ₹7,500 crore planned between 2020 and 2025 for capacity and capability development.
• Initial outlay of ₹894.1 crore for the new manufacturing facility in Odisha.
• CAPEX by Sales Ratio: 7.7%

Efficiency Improvement Targets #

• Cost-saving initiatives aiming for approximately 1.5% savings of annual sales each year.
• IT cost savings of about 1% of sales compared to peers.
• Reduction in carbon emissions through CNG/LNG and electric vehicles in logistics.
• MIDAS contributed to about half a percent of the Company’s growth through improved forecasting.
• 55.9% reduction in emissions over the past six years (compared to the 2018 baseline) across factories.
• 27.4% reduction in water withdrawal intensity compared to the 2018 baseline.

Potential Challenges and Opportunities #

• Challenges:

  • Escalating food inflation and volatile commodity prices, especially in coffee and cocoa.
  • Presence of counterfeit products.
  • Erratic monsoon, harvest uncertainties, and volatile raw material prices.

• Opportunities:

  • India becoming the world’s most populous country and a major economy.
  • Strong economic growth and a dynamic consumption landscape in India.
  • Growth potential in the plant-based product market.
  • Expanding RUrban reach and increasing sales in these markets.
  • Leveraging digital and analytics for direct-to-consumer sales and smarter decision-making.
  • Demographically driven demand.
  • Premiumization driving growth.

Scenario Analysis and Sensitivity to Key Assumptions #

• Inflation Risk Mitigation: Proactive commodity procurement processes are in place.
• RUrban Growth Sensitivity: Delays in infrastructure development or lower consumer spending in rural areas could impact sales growth.
• E-commerce Growth: If contribution of e-commerce channels to overall sales declines, overall growth rate might decline.
• Sustainability Initiatives: Financial implications are initially negative due to capital expenditure but are expected to become positive in the medium to long term.
• Royalty Payments: Failure to achieve future Royalty payment will have impact on new product launch.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditor’s report contains an unqualified opinion, indicating the financial statements present a true and fair view in conformity with generally accepted accounting principles in India.
• No qualifications, reservations, adverse remarks, or disclaimers were reported by the auditors.
• The auditors did not report any matter under Section 143(12) of the Companies Act, 2013.

Key Accounting Policies and Changes #

• Financial statements prepared on an accrual and going concern basis under the historical cost convention, with certain exceptions (financial assets/liabilities, share-based payments, and net liability for defined benefit plans) measured at fair value.
• The financial year changed from a calendar year (Jan-Dec) to a fiscal year (Apr-Mar), rendering the fifteen months ended March 31, 2024, not directly comparable to the prior 12-month year.
• The company adopted the Pooling of Interest method under Ind AS 103 for the acquisition of the Pet Food Business.
• The revenue recognition policy is consistent and measured upon the transfer of control, net of trade spends.
• Property, Plant, and Equipment are depreciated on the Straight Line method, consistent with previous years.

Internal Control Effectiveness #

• The auditor’s report provides a separate opinion stating that the company has adequate internal financial controls over financial reporting, which were operating effectively.
• The company has ISO27001-2022 certification, indicating robust data protection and digital asset security.

Regulatory Compliance Status #

• The company is in compliance with the Secretarial Standards SS-1 and SS-2.
• The company has complied with the provisions of sections 185 and 186 of the Companies Act, 2013, regarding loans, investments, guarantees, and security.
• The company has complied with the Plastic Waste Management Rules and its Extended Producer Responsibility (EPR) target.
• The company is compliant with the applicable environmental laws and regulations.
• The company complied with the provisions related to the constitution of an Internal Committee under POSH.
• The company has complied with applicable listing regulations of the BSE and NSE.
• The company declares being compliant with the SEBI regulations for the prohibition of insider trading.

Legal Proceedings and Potential Impact #

• The National Consumer Dispute Redressal Commission (NCDRC) dismissed the complaint filed by the Union of India, Department of Consumer Affairs, in favor of the company.
• Multiple tax disputes are outstanding, primarily related to disallowance of royalty and other expenses, as well as transfer pricing.
• There are no pending proceedings against the company under the Prohibition of Benami Property Transactions Act, 1988.

Related Party Transactions #

• All related party transactions were conducted in the ordinary course of business and on an arm’s length basis.
• The company issued a Postal Ballot Notice dated April 5th, 2024, to seek approval of the payment of general license fees (royalty) to Societe des Produits Nestle S.A at a rate not exceeding 5.25%. This resolution did not pass, and the company sought member approval to keep royalties at 4.5% net of taxes.
• The company is entering a slump sale of its Nestlé Business Services (NBS) Division to Purina PetCare India Private Limited (a related party, 100% subsidiary of Nestlé S.A.) for ₹798 million, effective July 1, 2024.
• The company formed a joint venture with Dr. Reddy’s Laboratories Limited to manufacture and market nutraceutical brands. The JV Company will be operational in Q2 of FY 2024-25.

Subsequent Events #

• Ms. Suneeta Reddy was appointed as an Independent Non-Executive Director, pending member’s approval as of April 5th, 2024.
• Mr. Sidharth Kumar Birla was appointed as an Independent Non-Executive Director effective June 12, 2024, pending shareholder approval.
• The proposal to increase royalty payments was voted down by shareholders on May 17th, 2024.
• The board approved the continuation of the general license fee (royalty) at the rate of 4.5% of net sales of the products sold by the Company.

Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The unqualified audit opinion, compliance with Ind AS, and consistent application of accounting policies suggest a high level of accounting quality. However, the change in the financial year end and the pooling of interest methodology introduce some complexity.
• Regulatory Risk: The company faces ongoing risks from tax disputes. The lack of material findings or penalties related to financial reporting and internal controls, and the presence of a robust risk management framework, indicate a relatively lower regulatory risk in those areas. The change in financial year-end does not impact overall accounting quality.