Understanding Nestle (a good company but not being managed in a prudent way

Nestle, a good company but not being managed  in a prudent way, Operationally as well as Financially.

 

  • It appears, that Company is ready to compromise on volumes but will keep on raising the price of its products. They must be following a policy like 8-12% annual increase in prices of products. And are okay with volume growth of 2-4%, which translates into value growth of 10-15%. One can notice that their Gross Margins are expanding almost every year and are as high as 56%.
  • Nestle’s business  can be bifurcated into 4 parts. Milk Products (Everyday etc.) accounts for ~45% of Sales value, Prepared dishes (Maggi  etc.) ~25%, Beverages (NesCafe etc.) ~16% and Chocolates (Polo, KitKat, Munch etc .) ~14%. 
  • Prepared dishes (Maggi) which constitutes 25-30% of sales were exceptionally down in year 2015 on account of the lead controversy, and it seems that it will regain most of the lost market share.
  • In case of Chocolates,  absolute volume of 2015 are even lower compared to volume of 2005.
  • Nestle uses ~40% of the ‘Cash Generated from Operation’ for Fixed Assets, ~40% is paid to shareholders as dividend , ~10%  get paid as finance cost, though its almost debt free company, residual cash remains as its.
  • ROE wich use to 113% is down to just 30%. Investment in fixed assets is not yielding good results. Plant & Machinery and Building are the two major heads where most of the cash generated got invested. Significant new money is also getting blocked in investments.
  • Earlier company use to generates sales 7-8 times of Shareholders funds now it has reduced to less than 3 times.  With  consistent ~12% Net Profit Margin, now its generating ROE around 30-40% vs 100+%.

Everyday, Milkmaid etc – Milk Products – ( ~ 45% of Sales)

03_milk_nas

Maggi, Oats etc – Prepared Dishes –  ( ~ 25% of Sales)

03pdca

Nescafe, Sunrise etc – Beverages –  ( ~ 16% of Sales)

bevragesnew1

Munch, KitKat, Eclaris etc – Chocolate –  ( ~ 14% of Sales)

choclate_new02

understanding_nestle

 

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