Nestle's revenues have grown 22 percent and net profit increased by 73 percent
Shares of Nestle India, the food and beverages company well-known in the Indian market for its Maggi brand of instant noodles, jumped nearly 23-fold in the last 10 years due to its consistent performance and market share in key products.
Despite a six-month ban on Maggi in 2015 for high monosodium glutamate (MSG) and lead content, Nestle India regained strength and rallied 149 percent from lows of Rs 5,011 per share hit in March 2016.
Over the last two years, from CY2016 to CY2018, Nestle's revenues have grown 22 percent and net profit has jumped 73 percent.
In 2015, Nestle's profit and topline declined 52 percent and 17 percent year-on-year (YoY), respectively following the Maggi ban. Albeit on a low base, the company's profit has grown a whopping 185 percent on a 38 percent rise in revenue from 2015 to 2018. Nestle follows the January-December financial year.
In the recent quarter ended June 2019, its profit and revenue grew around 11 percent each compared to the same period last year while the bottom line and topline growth in the first half of current year was 10 percent each YoY.
"Nestle has delivered 10 straight quarters of volume and mix-led growth on the back of consistent innovation and renovation, though environment continued to be challenging with headwinds in commodity prices and softer demand conditions," Suresh Narayanan, Chairman and Managing Director said.
The consistent performance has helped Nestle India grab a spot on the Nifty 50, the benchmark index of National Stock Exchange, with effect from September 27.
After a stupendous rally and addition into the Nifty 50, the question is whether it still deserves investor attention? Analysts Moneycontrol spoke to are optimistic about the company's growth prospects.
"Going forward, we expect Nestle's revenues to remain buoyant owing to the continued focus on innovating and renovating its brands, new launches in nutrition segment and emphasis on expanding penetration through expansion in the distribution cycle," Vineeta Sharma, Head of Research, Narnolia Financial Advisors said.
The change in product mix and judicious pricing is expected to cushion the declining margin in the wake of higher input prices.
"We continue to maintain a positive view of Nestle. After inclusion in Nifty, liquidity too will drive the stock price as the weight of consumer staples will increase from 8.5 percent to around 10 percent. Our 12-month target for the company is Rs 13,742," she added.
Prashanth Tape, AVP Research at Mehta Equities also said overall outlook remains optimistic on Nestle's growth despite a slowdown across various sectors in the economy.
He feels fast-moving consumer goods (FMCG) companies have emerged as a safe haven for investors and stay a safe bet in slowdown season, with steady and stable growth in revenues and profits.
"With respect to including Nestle into Nifty index we shoulder it as a better low volatility counter which can be considered upon fulfilling the eligibility criteria for inclusion of stocks in Nifty indices as per NSE revision Methodology," he said.
He is positive on Nestle's long-term growth prospects and advises investors to add at current levels for long term portfolio because he believes Nestle would continue to strengthen its presence by increasing market share, expanding distribution reach in the rural and urban areas, premiumizing and launching innovative products, steady capacity addition, and improved product mix.
On the technical front also, Romesh Tiwari, Head of Research, CapitalAim said the stock is moving from strength to strength and with this momentum, it is likely to touch 12,950 levels.
"I will advise traders to continue to hold on this stock with a stop-loss of 11,964 but no new buying at this stage. Investors should wait for the 11,500 level to buy in Nestle for the short term," he added.
Initially, in August, Nestle said it would soon commence construction of its newest, and ninth factory in India, at Sanand, Gujarat
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