Nestle India Limited Ratings Reaffirmed
Rating Action
1 crore = 10 million Refer to annexure for details of instruments and bank facilities *Carved out of Rs 1,800 crore long-term debt |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and debt programmes of Nestle India Limited (Nestle India).
The ratings continue to reflect the benefit that Nestlé India derives from its leadership position in several product categories, well-established brands and diversified revenue profile, ably supported by an extensive distribution network. The company also enjoys technical support from its parent, Nestlé SA (rated ‘AA-/Stable/A-1+’ by S&P Global), which is the world’s largest player in the branded and packaged foods industry. The financial risk profile of Nestle India was healthy, aided by strong cash accrual, minimal debt and superior liquidity. These strengths are partially offset by exposure to intense competition in the fast-moving consumer goods (FMCG) segment.
Nestle’s India’s operating performance is expected to sustain in fiscal 2022, with healthy double-digit revenue growth and operating margin of 22-23%. Revenue grew by nearly 10% year-on-year for the nine months ended September 30, 2021, supported by healthy growth in prepared dishes and cooking aids, confectionary and powdered milk beverages segments. Milk and nutrition segment showed moderate growth owing to higher pantry stocking last year coupled with lower Everyday sales in the current year. Operating margin remained stable at over 22% on account of strong cost savings and operational efficiencies but offset by higher commodity prices. Selective passing of cost and higher contribution from premium products will mitigate inflationary pressures. Fluctuations in input cost will remain a key monitorable. |
Key Rating Drivers & Detailed Description Strengths:
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 strong cash generating and well-established brands.
Revenue is diversified, with 43% of the revenue generated from milk and nutrition products (dairy products and weaning foods), 10% from beverages (instant coffee, iced tea and other beverage vending mixes), 32% from prepared dishes and cooking aids (the Maggi range), and around 15% from chocolates and confectionery (including Kit Kat and Munch) as of September 2021. The company has launched over 90 products in the past five years, with around 10 projects in the pipeline. Revenue contribution from these products increased to 5% in September 2021 from 1.5% in 2016.
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.
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 of 22-23%, resulting in sustained strong cashflow. Nestle’ India plans to incur capital expenditure (capex) amounting to Rs 2,600 crore, spread over 3-4 years, which will be funded through internal accrual. The capex is ongoing and the progress is visible in the commercialization of the factory at Sanand, Gujarat.
Weakness:
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. |
Liquidity: Superior Liquidity is superior, with cash surplus of over Rs 1,370 crore as on June 30, 2021. The company paid dividends in May 2021 (Rs 90 per share) and November 2021 (Rs 110 per share) amounting to a payout of Rs 1928 crore, which is expected to moderate liquidity. However, annual cash accrual is expected to remain healthy. |
Outlook: Stable CRISIL Ratings believes Nestlé India will continue to benefit from its leading market position in the key FMCG segment, healthy operating efficiency and strong parent support. The financial risk profile is expected to remain healthy over the medium term, supported by adequate cash flow and healthy capital structure. |
Rating Sensitivity factors Downward factors:
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About the Company Nestlé India(62.76% owned by Nestlé SA), began trading operations in India in 1912, as Nestlé Anglo Swiss Condensed Milk Company (Exports) Ltd. Nestlé India commenced manufacturing operations in 1961, by setting up a plant in Moga (Punjab). The company manufactures products under four categories: milk products and nutrition, beverages, prepared dishes and cooking aids, and chocolates and confectionery. Nestlé India has nine manufacturing facilities in India - at Moga (Punjab), Samalkha Haryana; Nanjangud, Karnataka; Ponda and Bicholim, Goa; Choladi, Tamil Nadu; Pantnagar, Uttarakhand; Tahliwal, Himachal Pradesh; and Sanand, Gujarat. |
Key Financial Indicators*
*CRISIL Ratings-adjusted numbers |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
#Not yet issued *Fully interchangeable with fund-based facilities **Fully interchangeable with non-fund based facilities |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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*Fully interchangeable with fund-based facilities
**Fully interchangeable with non-fund based facilities
Criteria Details
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