Rating Rationale
December 17, 2020 | Mumbai
Nestle India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.790 Crore*
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.1010 Crore Long Term Debt CRISIL AAA/Stable (Reaffirmed)
Rs.700 Crore Short Term Debt CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Carved out of Rs.1800 crore long term debt
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities, long-term and short-term debt programme of Nestle India Limited (Nestle India).
 
The ratings continue to reflect the benefit that Nestle 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, Nestle SA (rated 'AA-/Stable/A-1+' by S&P Global), which is one of the world's largest players in the branded and packaged foods sector. Nestle India's financial risk profile remains healthy, with strong cash accrual, minimal debt, and superior liquidity. These strengths are partially offset by intense competition in the fast-moving consumer goods (FMCG) segments.
 
Nestle's India's operating performance is expected to improve in 2021 with healthy double digit revenue growth and operating margin of 20-22%. Revenue grew by nearly 8% year-on-year for the nine months ended September 30, 2020, supported by 5% volume growth and 3% value growth; while reported operating margin remained stable at 22% on account of lower marketing spends, but offset by higher commodity prices. Selective passing of costs and higher contribution from premium products is expected to partially mitigate pressure on the margin. Fluctuations in input cost remains a key monitorable.

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
Nestle 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 profile is diversified, with 47% 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), 30% from prepared dishes and cooking aids (the Maggi range), and 13% from chocolates and confectionery (including Kit Kat and Munch) as of September 2020. The diversified revenue profile mitigates risks, as reflected in healthy performance during the ban on noodles.
 
* Continued technical support from Nestle SA
Most of Nestle 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 Nestle SA holds a 62.76% stake in Nestle India and is one of the world's largest players in the food and beverages sector.  
 
* Healthy financial risk profile
Financial risk profile is robust, supported by strong operating cash flow and comfortable capital structure. Despite the volatility in raw material prices, changes in product mix and prudent cost management have ensured stable operating margin of 20-22%. Nestle' India plans to incur capital expenditure (capex) amounting to Rs 2,600 crore, spread over the next 3-4 years; and is expected to be funded by internal accrual.
 
Weakness
* Susceptibility to intense competition
Nestle India is exposed to increasing and intense competition in the domestic FMCG segment, with the entry of new players, including multinationals, in various divisions such as instant noodles, packaged foods, beverages, chocolates and confectionary. The competition is further increasing due 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 2,900 crore as on June 30, 2020. The company paid an interim dividend in November 2020 (Rs 135 per share) amounting to a payout of Rs 1302 crore, which is expected to moderate liquidity. However, annual cash accrual is expected to remain healthy resulting in sustained superior liquidity.

Outlook: Stable

CRISIL believes Nestle India will continue to benefit from its leading market position in the key FMCG segments, healthy operating efficiencies, and strong parent support. The financial risk profile is expected to remain healthy over the medium term, supported by adequate cash flow and a healthy capital structure.

Rating Sensitivity factors
Downward Factors
* Erosion in market share in key business segments, constraining cash generation.
* Large, debt-funded capex or acquisition, weakening the financial risk profile with gearing increasing to above 0.5 time
* Considerable decline in cash and liquid investments.
About the Company

Nestle India (62.76% owned by Nestle SA), began trading operations in India in 1912, as Nestle Anglo Swiss Condensed Milk Company (Exports) Ltd. Nestle 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. Nestle India has eight manufacturing facilities in India - at Moga (Punjab), Samalkha (Haryana), Nanjangud (Karnataka), Ponda and Bicholim (Goa), Choladi (Tamil Nadu), Pantnagar (Uttarakhand) and at Tahliwal (Himachal Pradesh). In August 2019, Nestle India announced the commencement of construction of its ninth factory in India at Sanand, Gujarat for the production of Maggi Noodles, involving an initial investment of nearly Rs 700 crore, spread over two years.  

Key Financial Indicators*
As on/for the period ended December 31 Unit 2019 2018
Revenue Rs.Crore 12,369 11,292
Profit After Tax (PAT) Rs.Crore 1,970 1,607
PAT Margin % 15.9 14.2
Adjusted debt/adjusted networth Times 0.01 0.01
Interest coverage Times 1,639 648
*CRISIL adjusted

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Crore) Complexity Level Rating assigned
with outlook
NA Long-term debt# NA NA NA 1010 Simple CRISIL AAA/Stable
NA Short-term debt NA NA 7-365 days 700 Simple CRISIL A1+
NA Bank Guarantee NA NA NA 37.5 NA CRISIL A1+
NA Letter of credit & Bank Guarantee NA NA NA 155 NA CRISIL A1+
NA Letter of credit & Bank Guarantee* NA NA NA 175 NA CRISIL AAA/Stable
NA Overdraft NA NA NA 25 NA CRISIL AAA/Stable
NA Proposed Long Term Bank Loan Facility** NA NA NA 7.5 NA CRISIL AAA/Stable
  Working Capital Facility NA NA NA 390 NA CRISIL AAA/Stable
#Not yet issued
*Fully interchangeable with fund based facilities
**Fully interchangeable with non-fund based facilities
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Long Term Debt  LT  0.00
17-12-20  		CRISIL AAA/Stable  17-01-20  CRISIL AAA/Stable  31-01-19  CRISIL AAA/Stable  09-01-18  CRISIL AAA/Stable    --  -- 
            25-01-19  CRISIL AAA/Stable           
Short Term Debt  ST  700.00  CRISIL A1+  17-01-20  CRISIL A1+  31-01-19  CRISIL A1+  09-01-18  CRISIL A1+  21-11-17  CRISIL A1+  CRISIL A1+ 
            25-01-19  CRISIL A1+           
Fund-based Bank Facilities  LT/ST  422.50  CRISIL AAA/Stable  17-01-20  CRISIL AAA/Stable  31-01-19  CRISIL AAA/Stable  09-01-18  CRISIL AAA/Stable  21-11-17  CRISIL AAA/Stable  CRISIL AAA/Stable 
            25-01-19  CRISIL AAA/Stable           
Non Fund-based Bank Facilities  LT/ST  367.50  CRISIL AAA/Stable/ CRISIL A1+  17-01-20  CRISIL AAA/Stable/ CRISIL A1+  31-01-19  CRISIL AAA/Stable/ CRISIL A1+  09-01-18  CRISIL A1+    --  -- 
            25-01-19  CRISIL AAA/Stable/ CRISIL A1+           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 37.5 CRISIL A1+ Bank Guarantee 25 CRISIL A1+
Letter of credit & Bank Guarantee 155 CRISIL A1+ Letter of credit & Bank Guarantee 155 CRISIL A1+
Letter of credit & Bank Guarantee* 175 CRISIL AAA/Stable Letter of credit & Bank Guarantee* 175 CRISIL AAA/Stable
Overdraft 25 CRISIL AAA/Stable Overdraft 25 CRISIL AAA/Stable
Proposed Long Term Bank Loan Facility** 7.5 CRISIL AAA/Stable Proposed Long Term Bank Loan Facility** 20 CRISIL AAA/Stable
Working Capital Facility 390 CRISIL AAA/Stable Working Capital Facility 390 CRISIL AAA/Stable
Total 790 -- Total 790 --
*Fully interchangeable with fund based facilities
**Fully interchangeable with non-fund based facilities
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fast Moving Consumer Goods Industry
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Mapping global scale ratings onto CRISIL scale

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