Nestle is a good long-term buy

Nestle SA is the world’s largest food and beverage company, with over 2,000 brands and a presence in over 190 countries around the world. Nestle India is a subsidiary of Nestle SA, having started operations in India in the year 1912, to sell Swiss condensed milk. Today, it has become the first pure food listed entity in the country to cross Rs 10,000 crore sales turnover. Nestle India has eight state of the art manufacturing facilities across the country. The company’s flagship instant noodles brand, Maggi, has attained a mind boggling 60% market share in the country and contributes around one third of the total sales of the company. The company had hit a road-block in mid 2015, when it had to withdraw Maggi noodles from the market, following a regulatory ban on the product by the FSSAI. The ban was due to an alleged presence of lead beyond permissible limits found in Maggi noodles. Nestle India re-launched the noodles in November 2015, five months after the regulatory ban and is now almost touching sales of the pre-crisis levels. With an equity capital of Rs 96.42 crore and net worth of Rs 3,420 crore, Nestle India’s share book value works out to Rs 354.78. The foreign

parent holds 62.8% of the equity capital, domestic institutions hold around 8%, foreign institutional investors hold another 13%, while the balance is held by the Indian investing public. The market cap stands at Rs 1 lakh crore at the current market price of Rs 10,355 per share. Its healthy sales performance has been supported by brands like Maggi Nutrilicious noodles, Milkybar, KitKat and Milo as well as new variants of Grekyo. With continuous thrust on innovation and renovation, Nestle has launched 15 new products in the last one year and proposes to launch many new products in the next few quarters in the Maggi Dip and Milo drink and KitKat chocolate space. In April 2018, Government of Gujarat had joined hands with Nestle India and National Association of Street Food Vendors of India to train 375 street food vendors in Ahmedabad on food quality and safety. Keeping in line with changing consumer preference towards healthier products, the company plans to reduce salt, sugar and fat across its brands by 6%-10% over the next two-three years. The next year should be good for Nestle India, due to a combination of factors such as settling down of GST, good monsoon and upcoming state elections. All this should have a positive impact on the consumption sector and benefit Nestle to a large extent. The Nestle stock can be purchased by investors for long term with steady gains in their portfolio.

The Nifty ended the Friday session racing past the 11,500-mark on the back of multiple positive factors. There was widespread buying seen across all sectors and the mood was of optimism after last week’s downfall. Short covering by traders, selective buying by Indian mutual funds and some positive commentary from the Prime Minister’s economic review meeting helped the markets regain lost ground. The market outlook for next week is positive with consumption, pharma and IT sectors to trade strong.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.