Rating Rationale
January 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 Nestle India Limited (Nestle India's) long-term and short-term debt programme and bank loan facilities.

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 accruals, minimal debt, and superior liquidity. These strengths are partially offset by intense competition in the fast-moving consumer goods (FMCG) segments.

Revenues grew by nearly 10% year-on-year, for the nine months ended September 30, 2019, supported by healthy volumes and new product launches. Contribution of new products to domestic sales improved to 3.7% for the six months ended through June 2019, from 3% in the corresponding period of 2018. Operating margins have moderated marginally by 100 basis points to 23.7% for the for the nine months ended September 30, 2019 on the back of higher input costs mainly milk and milk derivatives, and wheat. However, selective passing of costs and higher contribution from premium products is expected to partially offset margin pressures. 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 is present 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. The company has leadership position in seven out of eight categories and has been able to maintain its share across categories despite the increasing competition.
 
Revenue profile is diversified, with 47% of revenue generated from milk and nutrition products (dairy products and weaning foods), 10% from beverages (instant coffee, iced tea and other beverage vending mixes), 29% from prepared dishes and cooking aids (Maggi range), and 14% from chocolates and confectionery (including Kit Kat and Munch).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 Beverage 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 management of cost has ensured stable operating margins of 21-24%.
 
Weakness:
* Susceptibility to intense competition
Nestle India is exposed to the 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 the players.
Liquidity Superior

Liquidity is superior, with cash surplus of over Rs 4000 crore as on June 30, 2019. The company declared special dividend in August 2019 (Rs 180 per share) amounting to a payout of Rs 1735 crore (before dividend distribution tax) which is expected to moderate liquidity. However, annual cash accruals are expected to remain healthy resulting in sustained superior liquidity.

Outlook: Stable

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

Rating Sensitivity factors
Downward factors:
* Erosion in market share in key business segments, constraining cash generation.
* Large, debt-funded capital expenditure or acquisition, adversely impacting 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 which will involve an initial investment of nearly Rs 700 crore over the next two years.

Key Financial Indicators*
As on / for the period ended December 31 Unit 2018 2017
Revenue Rs crore 11,292 10,038
Profit after tax (PAT) Rs crore 1,607 1,225
PAT margin % 14.2 12
Adjusted debt/adjusted networth Times 0.01 0.01
Interest coverage Times 648 3235
*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. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned
with outlook
NA Long-Term Debt# NA NA NA 1010 CRISIL AAA/Stable
NA Short-Term Debt NA NA 7-365 days 700 CRISIL A1+
NA Bank Guarantee NA NA NA 25 CRISIL A1+
NA Letter of credit & Bank Guarantee NA NA NA 155 CRISIL A1+
NA Letter of credit & Bank Guarantee* NA NA NA 175 CRISIL AAA/Stable
NA Overdraft NA NA NA 25 CRISIL AAA/Stable
NA Proposed Long Term Bank Loan Facility** NA NA NA 20 CRISIL AAA/Stable
 NA Working Capital Facility NA NA NA 390 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
17-01-20  		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+      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  435.00  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  355.00  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 25 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** 20 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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