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Money Polls 2019 Nestle India Limited 13 August 2019
https://euromoney.com/brokers
High growth phase to continue despite industry headwinds
th
COMPANY UPDATE We attended Nestle India (NEST)’s investor meet on 9 August. The key takeaways are: 1)
aggressive A&P spends along with conservative price hikes should help sustain double-digit
Sector: FMCG Rating: BUY volume growth for the company, 2) out-of-home consumption (OOH) trends and the fast growing
CMP: Rs 11,872 Target Price: Rs 13,905 e-commerce and modern trade channels are the large medium-term opportunities, 3) the use of
technology to build the cluster marketing strategy should enhance growth in NEST’s core
Stock Info categories, 4) the innovation/renovation momentum should continue after a success rate of 70%
Sensex/Nifty 36,958/ 10,926 (5-10% for peers) over 60 new launches in the last 3 years, 5) the impact of the on-going rural
Bloomberg NEST IN distress should be minimal for NEST given that rural sales contribute only 20-25% to overall
revenues vs 35-45% for peers and 6) raw material cost pressures should be offset by
Equity shares (mn) 96
premiumisation, better product mix and procurement efficiencies. The company’s continued
52-wk High/Low Rs 12,266/9,080
dominance in its core categories, strong brand equity and long-term vision to invest in new
Face value Rs 10 categories place it perfectly to capture a large share of the upcoming F&B opportunity. We are
M-Cap Rs 1,144bn/US$ 16bn impressed with NEST’s 10.8% volume growth, backed with robust secondary sales in 1HCY19
3-m Avg volume US$ 10.6mn (despite a moderation in market growth) which were driven by a strong performance in the
chocolates and prepared dishes categories. A 50bps rise in A&P spends to 7.8% of sales and
Financial Snapshot (Rs mn) limited price hikes has started yielding results. The contribution of new launches (where lead
Y/E Mar CY19E CY20E CY21E times are reduced to 3-9 months from 18-36 months) to sales has now increased to 3.7%. The
Sales 125,587 142,338 161,192 company has maintained its market shares driven by the resilient performance of key brands
Adj. PAT 18,450 21,337 24,378 KitKat, Munch, Nan and Maggi noodles. A capex of Rs 7bn on the new plant for Maggi in Sanand,
Adj. EPS (Rs) 191.3 221.3 252.8 Gujarat was announced. NEST also declared a special interim dividend of Rs 180 which will lead
PE (x) 62.7 54.2 47.5 to a sharp increase in return ratios. We introduce our CY21 earnings and reduce our CY19/20E
EV/EBITDA (x) 38.5 33.3 26.3 PAT by 5%/8% to factor-in slightly lower growth and operating margins. We believe NEST’s
P/BV (x) 56.8 44.0 32.8 execution momentum should sustain despite the industry headwinds, which will support the
EV/Sales 9.2 8.1 6.4 premium valuations for the stock. We roll-forward our valuations to CY21, re-iterate NEST as our
RoE (%) 64.6 91.5 79.2 top pick in the staples space and maintain our BUY rating with a revised TP of Rs 13,905 (vs Rs
RoCE (%) 53.2 64.5 61.4 12,165 earlier) based on 55x (unchanged) CY21E earnings.
NWC (days) -2.0 -2.0 -1.0
Net gearing (x) 0.0 -0.4 -0.7 Strengthening distribution and supply chain: NEST has reduced the number of warehouses to 29
from 37 after GST implementation which has brought down the supply chain costs. It aims to
Shareholding Pattern (%) improve its market access by ramping up distribution, especially in the rural markets. Its direct
distribution coverage is currently 8,000 towns and 52,000 villages while total distribution is at
Jun 19 Mar 19 Dec 18
4.6mn outlets with a target to reach 5.5-6mn outlets. It is also targeting the fast growing e-
Promoter 62.8 62.8 62.8 commerce (1.5% of sales) and modern trade formats (10% of sales) to expand its reach.
–Pledged - - -
FII 12.4 12.1 12.4 Focus on the large OOH and vending opportunity: The company believes that out-of-home and
DII 7.5 8.1 7.5 vending are the large medium-term opportunities as they provide: 1) easy access to the target
Others 17.4 17.0 17.4 market, 2) multiple products on one platform, 3) strong sampling opportunities. NEST currently has
400 kiosks with an annual footfall of 13.5mn and targets to reach 1,000 such kiosks to retail
Stock Performance (1-year) premium beverages and a wider portfolio of products.
12,000
11,500 Segmental highlights: While other brands sustained market shares, KitKat saw sharp gains as the
11,000 chocolate segment grew 23%, benefitting from aggressive sales initiatives and successful
10,500
10,000
innovation/renovation projects like KitKat Dessert Delight and Milkybar Moosha. The milk segment
9,500 delivered 8.5% growth led by Nan and the launch of organic cereals under the brand Ceregrow.
9,000 Prepared dishes delivered 15% growth led by Maggi which surpassed the pre-crisis volume/value
8,500
8,000
levels along with strong growth in Masala-ae-Magic. Beverages saw muted volume growth of 4%
led by the weakness in canteen sales and Sunrise brand.
Jan-19

Jul-19
Nov-18

Feb-19
Aug-18

Sep-18

Mar-19

Apr-19

Jun-19
Dec-18

Aug-19
Oct-18

May-19

Nestle BSE Sensex Financial performance: The management agreed that the market growth momentum has
moderated but stated that its impact on NEST was limited. Barring the beverages segment, the
company saw broad-based growth, especially for its premium products. The operating margins
Himanshu Nayyar
[email protected]
were impacted by higher commodity prices and investments in new products. Return ratios should
+91 22 6704 8064 improve significantly after the special dividend payment. Key highlights for 1HCY19 are: 1) volume
growth of 10.8%, 2) e-commerce channel posted 56% YoY growth, 3) overall growth was impacted
Ashutosh Joytiraditya by a 11% decline in exports (coffee export to Turkey), 4) the premium portfolio grew 21% to reach
[email protected] th
11.7% of sales, 5) gross margins were impacted by the 4 consecutive quarter of raw material price
+91 22 6704 8068
increase (RM index up 5% in 1H) and 6) marketing spends were up 19% YoY to 7.8% from 7.3% of
Poorvi Khandelwal sales led by 45% growth in digital spends.
[email protected]
+91 22 6704 8046
Investors are advised to refer disclosures made at the end of the research report.

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13 August 2019 Nestle India Limited
Exhibit 1: Expect steady revenue and PAT growth trajectory Exhibit 2: EBITDA margin to stabilise at 24%, gross margin at 58%

111.7%

59.1%
120.0%

58.6%
58.5%
58.4%
70.0%

57.6%

57.5%

56.8%
54.1%
100.0%
60.0%
80.0%
60.0% 50.0%

21.9%

15.6%

14.2%
13.3%

13.2%
13.2%

12.1%
12.1%

12.0%
40.0% 11.8%

9.5%
8.3%
6.0%

40.0%

24.3%
24.2%
23.9%
20.0%

23.7%
22.2%

22.2%
20.6%
0.0% 30.0%

12.9%
-20.0% 20.0%
-17.0%

-40.0%
-52.5%

10.0%
-60.0%
-80.0% 0.0%
CY14 CY15 CY16 CY17 CY18 CY19E CY20E CY21E CY14 CY15 CY16 CY17 CY18 CY19E CY20E CY21E

Revenue growth (%) PAT growth (%) Gross margin EBITDA margin

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 3: Sharp improvement expected in return ratios Exhibit 4: Special dividend in CY19 to improve capital efficiency
91%

100% (Rs)
79%

90% 350
301
80%
300
65%

64%

61%

70%
53%

250
60%
46%
43%
40%
39%

50% 200
38%

37%

146
40% 150 133
115
20%
19%

30% 86
100 63 63
20% 49
10% 50
0% -
CY15 CY16 CY17 CY18 CY19E CY20E CY21E CY14 CY15 CY16 CY17 CY18 CY19E CY20E CY21E

RoE RoCE DPS (Rs)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 5: Volume growth trajectory sustaining despite slowdown Exhibit 6: Sales growth trajectory – lower pricing/mix impact
('000 Tons) (%) (Rs bn) (%)
140 18 30 20
15.3 17.5
120 16 18
25 16
12.3 14
100 11.7 11.5 13.1
10.9 12 12.0 14
20
8.9 9.3 10.8 10.2 12
80 10 9.7
7.9 7.5 8.8
15 8.0 10
60 8
5.7 6.3 8
6 10
40 3.7 6
4 4
20 5
24.1

23.2

23.4

25.6

25.1

27.5

26.9

28.2

28.4
101

105

113

105

110

116

2 2
94

94

97

96

24

0 0 0 0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
Domestic sales quantity ('000 Tons)
Domestic sales (Rs, bn) Reported growth (%)-RHS
Real Internal growth (volume & mix) %-RHS
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

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13 August 2019 Nestle India Limited
Exhibit 7: Market share trends in key categories Exhibit 8: Increasing contribution from e-commerce
1.6% 1.5%
Category MAT Jun-19 MAT Jun-18 1.3%
1.4%
Infant Cereals 96.5 96.1
1.2%
Infant Formula 66.6 67.4 1.0% 0.9%
Tea Creamer 44.1 45.2 0.8%
Instant Noodles 59.2 59.1 0.6%
0.6%
Ketchup & Sauces 20.5 21.6 0.4%
Instant Pasta 73.7 66.4 0.2%
White & Wafers 63.4 61.1 0.0%
Instant Coffee 50.5 50.2 2016 2017 2018 1H2019

As a % of domestic sales

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 9: Region-wise sales split Exhibit 10: Region-wise growth rates

16.2%
18.0%

14.6%

13.8%
13.6%
16.0%

12.2%

11.8%

11.6%
11.4%
11.3%
18% 14.0%

10.4%
27% 12.0%

9.4%
7.9%
North 10.0%

7.1%
6.9%
East 8.0%

3.9%
South 6.0%
24% 4.0%
West
2.0%
31% 0.0%
North East South West Total

1H19 1H18 Comparable 1H18

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 11: Category-wise sales split (1HCY19) Exhibit 12: Distribution reach: Aims to reach 5.5-6 mn outlets
(mn)
6.0
5.0
10% 5.0 4.6
4.5
Milk Products & Nutrition 4.2
4.0
4.0 3.5
14%
Prepared Dishes &
47% Cooking Aids 3.0

Confectionery 2.0

Powdered & Liquid 1.0

29% Beverages
0.0
2014 2015 2016 2017 2018 1H2019
Number of outlets (in mn)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

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13 August 2019 Nestle India Limited
Exhibit 13: Value and volume data across categories – strong show from confectionery and prepared dishes
Value (Rs bn) Volume (000' Tons)
H1'19 H1'18 Growth (%) H1'19 H1'18 RIG (%)
Milk Products & Nutrition 26.5 24.4 8.5% 66.8 65.4 8.1%
Prepared Dishes & Cooking Aids 16.3 14.2 15.0% 124.2 111.3 12.9%
Confectionery 7.9 6.4 22.5% 24.0 19.5 22.8%
Powdered & Liquid Beverages 5.9 5.7 4.2% 11.0 10.0 3.4%
Source: Company, Systematix Institutional Research

Exhibit 14: Inflation in key inputs like milk and flour Exhibit 15: Fourth consecutive quarter of RM price inflation
(%)
14% 101
12% 12% 100 100
12% 100
10%
10% 99
98 98
8% 98
8%
6% 97
6% 5% 96
96
4% 95 95
2% 95
2% 94
0% 93
Milks Wheat Coffee Palm Oil Sugar (7%) MSK (4%) Palm
92
(42%) Flour (10%) (7%) Kernel
4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19
(13%) (3%)
Price movement of key commodities (1H'19 vs. 1H'18) Price index of commodity basket

Source: Company, Systematix Institutional Research; Source: Company, Systematix Institutional Research
Note: Numbers in bracket indicate % contribution to RM basket

Exhibit 16: Currently trading at 57x one-yr fwd P/E Exhibit 17: Currently trading at 35x one-yr fwd EV/EBITDA
120.0 70.0
110.0
60.0
100.0
90.0 50.0
80.0
70.0 40.0
60.0
50.0 30.0
40.0
20.0
30.0
20.0 10.0
Aug-10

Aug-19
Aug-09

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18
Feb-12

Feb-15
Feb-10

Feb-11

Feb-13

Feb-14

Feb-16

Feb-17

Feb-18

Feb-19

Aug-11

Aug-14
Aug-09

Aug-10

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19
Feb-12

Feb-15

Feb-18
Feb-10

Feb-11

Feb-13

Feb-14

Feb-16

Feb-17

Rolling P/E (x) Mean P/E (x) Rol EV/EBITDA Mean EV/EBITDA (x) Feb-19

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

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13 August 2019 Nestle India Limited
Exhibit 18: Quarterly performance
YE March (Rs mn) 2QCY19 2QCY18 1QCY19 YoY (%) QoQ (%)
Net Revenues 30,009 26,984 30,030 11.2 (0.1)
Raw material cost 11,998 10,376 11,934 15.6 0.5
(% of sales) 40.0 38.5 39.7
Purchase of traded goods 523.5 514.3 519.4 1.8 0.8
(% of sales) 1.7 1.9 1.7
Employee cost 3,146 2,849 3,038 10.4 3.6
(% of sales) 10.5 10.6 10.1
Others 7,368 6,795 7,162 8.4 2.9
(% of sales) 24.6 25.2 23.8
EBITDA 6,973 6,450 7,377 8.1 (5.5)
EBITDA margin (%) 23.2 23.9 24.6
Other income 726 602 732 20.5 (0.8)
PBIDT 7,699 7,053 8,109 9.2 (5.1)
Depreciation 808 817 780 (1.1) 3.7
Interest 299 283 316 5.9 (5.3)
PBT 6,592 5,953 7,013 10.7 (6.0)
Tax 2,213 2,003 2,381 10.5
ETR (%) 33.6 33.6 33.9
Adjusted PAT 4,378 3,950 4,633 10.8 (5.5)
PATAMI margin 14.6 14.6 15.4
Extraordinary income/ (exp.) 0 0 0
Reported PAT 4,378 3,950 4,633 10.8 (5.5)
Other Comprehensive income 0 0 5
Total Comprehensive income 4,379 3,951 4,637 10.8 (5.6)
No. of shares (mn) 96.4 96.4 96.4
Adj EPS (Rs) 45.4 41.0 48.0
Source: Company, Systematix Institutional Research

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13 August 2019 Nestle India Limited

FINANCIALS (CONSOLIDATED)
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) CY17 CY18 CY19E CY20E CY21E YE: Mar (Rs mn) CY17 CY18 CY19E CY20E CY21E
Net Sales 100,096 112,162 125,587 142,338 161,192 Equity capital 964 964 964 964 964
RM Cost 41,521 43,597 50,076 56,705 64,084 Reserves and surplus 33,242 35,773 19,396 25,333 34,310
Purchase of trad. Goods 1,748 2,306 2,153 2,390 2,677 Net worth 34,206 36,737 20,360 26,297 35,275
Gross Profits 56,827 66,260 73,358 83,243 94,432 Total Debt 351 351 351 351 351
Employee costs 10,175 11,242 12,559 14,234 16,119 Other LT liabilities 22,922 24,654 27,120 29,832 32,815
Selling & Admin costs 24,439 28,454 30,769 34,588 39,171 Total sources 57,479 61,743 47,831 56,480 68,441
Total Expenses 77,882 85,598 95,556 107,917 122,050 Net Block 26,162 24,006 24,516 24,879 22,982
Net deferred tax (1,220) (588) (588) (588) (588)
EBITDA 22,214 26,564 30,031 34,421 39,142 Other assets 1,788 1,833 2,016 2,218 2,440
Depreciation 3,423 3,357 3,491 3,637 3,896 CWIP 942 1,052 1,052 1,052 1,052
Other income 1,769 2,589 2,589 2,848 3,133 Investments 19,789 26,585 26,585 26,585 26,585
EBIT 20,560 25,796 29,129 33,632 38,378 Cash 14,574 16,101 1,240 10,207 24,389
Interest cost 919 1,120 961 1,056 1,161 Inventories 9,025 9,656 9,978 11,309 13,249
PBT 19,641 24,677 28,168 32,576 37,218 Debtors 890 1,246 1,376 1,560 2,208
Taxes 6,141 8,220 9,718 11,239 12,840 Other current assets 458 403 590 661 1,181
Adj. PAT 13,500 16,457 18,450 21,337 24,378 Current Assets 10,372 11,304 11,945 13,530 16,638
Extraordinaries 1,248 1,148 - - - Creditors 9,846 12,404 12,043 13,649 15,898
Reported PAT 12,252 15,309 18,450 21,337 24,378 Other CL 5,081 6,146 6,891 7,752 9,159
No. of shares (mn) 96.4 96.4 96.4 96.4 87.7 Current Liabilities 14,927 18,550 18,934 21,401 25,057
Net Working Capital (4,555) (7,245) (6,989) (7,871) (8,419)
Adj. EPS 140.0 170.7 191.3 221.3 252.8 Total Uses 57,479 61,743 47,831 56,480 68,440
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) CY17 CY18 CY19E CY20E CY21E YE: Mar CY17 CY18 CY19E CY20E CY21E
PBT 18,393 24,677 28,168 32,576 37,218 Yoy growth in Revenue 9.5 12.1 12.0 13.3 13.2
Add: Depreciation 3,423 3,357 3,491 3,637 3,896 Yoy growth in EBITDA 9.4 19.6 13.1 14.6 13.7
Add: Interest 7 1,120 961 1,056 1,161 Yoy growth in Net income 13.2 21.9 12.1 15.6 14.2
Less: taxes paid (6,041) (8,220) (9,718) (11,239) (12,840)
Add: other adjustments (1,353) 1,687 2,282 2,510 2,761 Effective tax rate 33.1 35.0 34.5 34.5 34.5
Less: WC changes 3,750 2,690 (257) 883 548 EBITDA margin 22.2 23.7 23.9 24.2 24.3
Total OCF 18,178 25,310 24,928 29,423 32,744 PAT margin 13.5 14.7 14.7 15.0 15.1
OCF w/o WC changes 14,428 22,620 25,184 28,541 32,196 ROACE (pre-tax) 37.3 43.3 53.2 64.5 61.4
ROAE 40.3 46.4 64.6 91.5 79.2
Capital expenditure (1,959) (1,312) (4,000) (4,000) (2,000)
Change in investments (1,047) 6,796 - - - Net debt to equity (x) (0.4) (0.4) (0.0) (0.4) (0.7)
Interest/Dividend reced. 1,700 - - - - Inventory days 33 31 29 29 30
Total ICF (1,306) 5,485 (4,000) (4,000) (2,000) Debtors days 3 4 4 4 5
Free Cash Flows 16,219 23,999 20,928 25,423 30,744 Payable days 36 40 35 35 36
NWC days 0 (5) (2) (2) (1)
Share issuances - - - - - Per share numbers (Rs)
Change in borrowings - - - - - Reported earnings 140.0 170.7 191.3 221.3 252.8
Dividends (9,979) (11,088) (34,827) (15,400) (15,400) Dividend 86.0 115.0 301.0 133.1 146.4
Interest payment (7) (1,120) (961) (1,056) (1,161) Free cash 168.2 248.9 217.0 263.7 350.7
Others (1,113) (17,061) 0 - (1) Book Value 354.8 381.0 211.2 272.7 365.8
Total FCF (11,098) (29,269) (35,788) (16,457) (16,562)
Valuations (x)
Net change in cash 5,774 1,526 (14,861) 8,967 14,182 Price to diluted earnings 85.7 70.3 62.7 54.2 47.5
Opening cash & CE 8,800 14,574 16,101 1,240 10,207 EV / EBITDA 51.4 43.0 38.5 33.3 26.3
Closing cash & CE 14,574 16,101 1,240 10,207 24,389 Price to sales 11.6 10.3 9.2 8.1 6.5
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

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13 August 2019 Nestle India Limited

Institutional Equities Team

Nikhil Khandelwal Managing Director +91-22-6704 8001 [email protected]

Navin Roy Vallabhaneni President & Head – IE & ECM +91-22-6704 8065 [email protected]
Equity Research
Analysts Industry Sectors Desk-Phone E-mail
Varatharajan Sivasankaran Oil & Gas, Telecom, Strategy +91-22-6704 8039 [email protected]
Rahul Jain Metals & Mining +91-22-6704 8066 [email protected]
Himanshu Nayyar Consumer, Retail, Agri, Logistics +91-22-6704 8064 [email protected]
Ronak Sarda Auto, Auto Anc +91-22-6704 8059 [email protected]
Ankit Gor Mid Caps +91-22-6704 8028 [email protected]
Ashutosh Joytiraditya Consumer +91-22-6704 8068 [email protected]
Poorvi Khandelwal Consumer +91-22-6704 8046 [email protected]
Naushad Chaudhary Mid Caps +91-22-6704 8036 [email protected]
Kumar Saumya Mid Caps +91-22-6704 8025 [email protected]
Kishan Mundhra Oil & Gas, Telecom, Strategy +91-22-6704 8074 [email protected]
Harsh Mittal Cement, Building Material +91-22-6704 8098 [email protected]
Amit Hiranandani Auto, Auto Anc +91-22-6704 8063 [email protected]
Udaykiran Paluri Metals & Mining +91-22-6704 8034 [email protected]
Pragnesh Jain Technical Research +91-22-6704 8024 [email protected]
Equity Sales & Trading
Name Desk-Phone E-mail
Pankaj Karde Head - Sales +91-22-6704 8061 [email protected]
Jigar Kamdar Sales +91-22-6704 8060 [email protected]
Viraj Mehta Sales +91-22-6704 8090 [email protected]
Ankit Pande Sales +91-22-6704 8085 [email protected]
Sandesh Sawant Sales +91-22-6704 8045 [email protected]
Pawan Sharma Head - Sales Trading +91-22-6704 8067 [email protected]
Vinod Bhuwad Sales Trading +91-22-6704 8051 [email protected]
Amar Margaje Sales Trading +91-22-6704 8097 [email protected]
Alefiya Alotwala Sales Trading +91-22-6704 8058 [email protected]
Vipul Chheda Dealer +91-22-6704 8050 [email protected]
Rahul Thakar Dealer +91-22-6704 8073 [email protected]
Amit Sawant Dealer +91-22-6704 8054 [email protected]
Paras Shah Dealer +91-22-6704 8047 [email protected]
Corporate Access
Jyoti Mishra Vice President +91-22-6704 8091 [email protected]
Mehek Talreja Assistant Vice President +91-22-6704 8078 [email protected]
Production
Yukti Vidyarthi Editor +91-22-6704 8071 [email protected]
Mrunali Pagdhare Production +91-22-6704 8057 [email protected]
Operations
Sachin Malusare Vice President +91-22-6704 8055 [email protected]
Jignesh Mistry Manager +91-22-6704 8049 [email protected]
Ravikiran Dasaka Manager +91-22-6704 8622 [email protected]
Sugandha Rane Assistant Vice President +91-22-6704 8056 [email protected]

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13 August 2019 Nestle India Limited

DISCLOSURES/APPENDIX

I. ANALYST CERTIFICATION

I, Himanshu Nayyar, Ashutosh Joytiraditya, Poorvi Khandelwal; hereby certify that (1) views expressed in this research report accurately reflect my/our personal views about any or all
of the subject securities or issuers referred to in this research report, (2) no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations
or views expressed in this research report by Systematix Shares and Stocks (India) Limited (SSSIL) or its group/associate companies, (3) reasonable care is taken to achieve and maintain
independence and objectivity in making any recommendations.

Disclosure of Interest Statement Update

Analyst holding in the stock No
Served as an officer, director or employee No

II. ISSUER SPECIFIC REGULATORY DISCLOSURES, unless specifically mentioned in point no. 9 below:

1. The research analyst(s), SSSIL, associates or relatives do not have any financial interest in the company(ies) covered in this report.

2. The research analyst(s), SSSIL, associates or relatives collectively do not hold more than 1% of the securities of the company(ies) covered in this report as of the end of the
month immediately preceding the distribution of the research report.
3. The research analyst(s), SSSIL, associates or relatives did not have any other material conflict of interest at the time of publication of this research report.

4. The research analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or any other products or
services from the company(ies) covered in this report in the past twelve months.

5. The research analyst, SSSIL or its associates have not managed or co-managed a private or public offering of securities for the company(ies) covered in this report in the previous
twelve months.

6. SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party in connection with this research
report.

7. The research analyst has not served as an officer, director or employee of the company(ies) covered in this research report.

8. The research analyst and SSSIL have not been engaged in market making activity for the company(ies) covered in this research report.

9. Details of SSSIL, research analyst and its associates pertaining to the companies covered in this research report:

Sr. Yes /
Particulars
No. No.
1 Whether compensation was received from the company(ies) covered in the research report in the past 12 months for investment banking transaction by SSSIL. No
2 Whether research analyst, SSSIL or its associates and relatives collectively hold more than 1% of the company(ies) covered in the research report. No
3 Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the research report. No
Whether SSSIL or its affiliates have managed or co-managed a private or public offering of securities for the company(ies) covered in the research report in the
4 No
previous twelve months.
Whether research analyst, SSSIL or associates have received compensation for investment banking or merchant banking or brokerage services or any other
5 No
products or services from the company(ies) covered in the research report in the last twelve months.

10. There is no material disciplinary action taken by any regulatory authority that impacts the equity research analysis activities.

STOCK RATINGS

BUY (B): The stock's total return is expected to exceed 20% over the next 12 months.
ACCUMULATE (A): The stock's total return is expected to be within 10-20% over the next 12 months.
HOLD (H): The stock's total return is expected to be within 0-10% over the next 12 months.
SELL (S): The stock's total return is expected to give negative returns over the next 12 months.
NOT RATED (NR): The analyst has no recommendation on the stock under review.

INDUSTRY VIEWS

ATTRACTIVE (AT): Fundamentals/valuations of the sector are expected to be attractive over the next 12-18 months.
NEUTRAL (NL): Fundamentals/valuations of the sector are expected to neither improve nor deteriorate over the next 12-18 months.
CAUTIOUS (CS): Fundamentals/valuations of the sector are expected to deteriorate over the next 12-18 months.

III. DISCLAIMER

The information and opinions contained herein have been compiled or arrived at based on the information obtained in good faith from sources believed to be reliable. Such information
has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.

This document is for information purposes only. This report is based on information that we consider reliable; we do not represent that it is accurate or complete and one should exercise
due caution while acting on it. Description of any company(ies) or its/their securities mentioned herein are not complete and this document is not and should not be construed as an
offer or solicitation of an offer to buy or sell any securities or other financial instruments. Past performance is not a guide for future performance, future returns are not guaranteed and
a loss of original capital may occur. All opinions, projections and estimates constitute the judgment of the author as on the date of the report and these, plus any other information
contained in the report, are subject to change without notice. Prices and availability of financial instruments are also subject to change without notice. This report is intended for
distribution to institutional investors.
This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity that is a citizen or resident or located in any
locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject to SSSIL or
its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently sent or has reached any individual in such country, especially USA, the same
may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken or transmitted into the United States (to U.S. persons), Canada, or
Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. Any unauthorized use, duplication,

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13 August 2019 Nestle India Limited
redistribution or disclosure of this report including, but not limited to, redistribution by electronic mail, posting of the report on a website or page, and/or providing to a third party a link,
is prohibited by law and will result in prosecution. The information contained in the report is intended solely for the recipient and may not be further distributed by the recipient to any
third party.

SSSIL generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any
companies that the analysts cover. Additionally, SSSIL generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of
any companies that they cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that
reflect opinions that are contrary to the opinions expressed herein. Our proprietary trading and investing businesses may make investment decisions that are inconsistent with the
recommendations expressed herein. The views expressed in this research report reflect the personal views of the analyst(s) about the subject securities or issues and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The
compensation of the analyst who prepared this document is determined exclusively by SSSIL; however, compensation may relate to the revenues of the Systematix Group as a whole, of
which investment banking, sales and trading are a part. Research analysts and sales persons of SSSIL may provide important inputs to its affiliated company(ies).

Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations which could have an adverse effect on their value or price or the income
derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. SSSIL, its directors, analysts
or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on the basis of this report
including but not restricted to fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.

SSSIL and its affiliates, officers, directors, and employees subject to the information given in the disclosures may: (a) from time to time, have long or short positions in, and buy or sell, the
securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation (financial interest)
or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential material
conflict of interest with respect to any recommendation and related information and opinions. The views expressed are those of the analyst and the company may or may not subscribe
to the views expressed therein.

SSSIL, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall SSSIL, any of its affiliates or any third
party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. The company accepts no liability whatsoever for the actions of
third parties. The report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of the company, the
company has not reviewed the linked site. Accessing such website or following such link through the report or the website of the company shall be at your own risk and the company
shall have no liability arising out of, or in connection with, any such referenced website.
SSSIL will not be liable for any delay or any other interruption which may occur in presenting the data due to any technical glitch to present the data. In no event shall SSSIL be liable for
any damages, including without limitation, direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by SSSIL
through this presentation.

SSSIL or any of its other group companies or associates will not be responsible for any decisions taken on the basis of this report. Investors are advised to consult their investment
and tax consultants before taking any investment decisions based on this report.

Systematix Shares and Stocks (India) Limited:

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