Term paper

Financial Management

on

Submitted to Submitted by

L.S.B

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 No serious and lasting achievement or success one
ever achiever without the friendly guidance and cooperation of many
people involved in the work. Foremost of all, I express my gratitude to
the almighty for his blessings and for vesting wisdom in all wishes.

I am also thankful to my subject teacher KAWANLPREET MAA’M

who has helped me a lot each and every time when I had some default.
Words are not sufficient to register my sincere to my loving parents for
their deep affection and unabated inspiration that really kept me going.
They were and unending source of strength and perseverance during the
course of the study’s place my thanks to all those who spread their time
and made it convenient for me to complete the research. Last but not the
least, I also wish to red cord my gratitude for any person or persons my
memory has failed to recall, who rendered his/her/their support and
services.
Yours obediently,

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PROFILE OF THE COMPANY

Nestle is now a days a synonyms of confectionaries in India as well as worldwide.

Nestlé with headquarters in Vevey, Switzerland was founded in 1866 by Henri Nestlé
and is today the world's biggest food and beverage company. Sales at the end of 2004
were CHF 87 billion, with a net profit of CHF 6.7 billion. We employ around 247,000
people and have factories or operations in almost every country in the world.

The Company's strategy is guided by several fundamental principles. Nestlé's existing

products grow through innovation and renovation while maintaining a balance in
geographic activities and product lines. Long-term potential is never sacrificed for short-
term performance. The Company's priority is to bring the best and most relevant
products to people, wherever they are, whatever their needs, throughout their lives.

BACKGROUND

Nestle was promoted by Nestle Alimentana, Switzerland, a wholly owned subsidiary of

Nestle Holdings Ltd., Nassau, Bahama Islands. Nestle is one of the oldest food MNC

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operating in India, with a presence of over a century. For a long time, Nestle India’s
operations were restricted to importing and trading of condensed milk and infant food.
Over the years, the Company expanded its product range with new products in instant
coffee, noodles, sauces, pickles, culinary aids, chocolates and confectionery, dairy
products and mineral water.

Nestle was incorporated as a limited company in 1959. In 1978, the Company issued
shares to the Indian public to reduce its foreign holdings to 40%. Its name was changed
from Foods Specialties Ltd. to the current name in 1981.The parent held 51% stake in
the company as at 2000 end. It has FIPB approval to hike stake by 10% and has been
gradually acquiring shares from the open market. Parent stake in the company as at
2001 end stood at 53.8%. The parent plans to continue hiking stake through open
market purchases.

Nestle India Ltd, 51% subsidiary of Nestle SA, is among the leading branded food
player in the country. It has a broad based presence in the foods sector with leading
market shares in instant coffee, infant foods, milk products and noodles. It has also
strengthened its presence in chocolates, confectioneries and other semi processed
food products during the last few years. The company has launched Dairy Products like
UHT Milk, Butter and Curd and also ventured into the mineral water segment in 2001.
Nestle’s leading brands include Cerelac, Nestum, Nescafe, Maggie, Kitkat, Munch and
Pure Life.

PLANT LOCATIONS

Nestle started its manufacturing operations with Milkmaid in 1962 at Moga factory.
Manufacturing of Nescafe started in 1964 at the same factory. The company set up
another factory at Cherambadi in Tamil Nadu, for manufacture of infant foods, coffee
etc. For almost two decades there were no new additions of manufacturing facilities due
to restrictive policy environment. The company set up its Nanjangad (Karnataka) factory
in 1989 and the Samlakha (Haryana) factory in 1992. The Ponda (Goa) factory started

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operations in 1995. The Company set up its sixth manufacturing unit in 1997 at
Bicholim in Goa

BUSINESS PRINCIPLES

Since Henri Nestlé developed the first milk food for infants in 1867, and saved the life
of a neighbor’s child, the Nestlé Company has aimed to build a business based on
sound human values and principles.

While our Nestlé Corporate Business Principles will continue to evolve and adapt to a
changing world, our basic foundation is unchanged from the time of the origins of the
Company, and reflects the basic ideas of fairness, honesty, and a general concern for
people.

People first

Employees, people and products are more important at Nestlé than systems. Systems
and methods, while necessary and valuable in running a complex organization, should
remain managerial and operational aids but should not become ends in themselves. It
is a question of priorities. A strong orientation toward human beings, employees and
executives is a decisive, if not the decisive, component of long-term success.

Quality products

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Our focus is on products. The ultimate justification for a company is its ability to offer
products that are appealing because of their quality, convenience, variety and price --
products that can stand their ground even in the face of fierce competition.

Long-term view

Nestlé makes clear a distinction between strategy and tactics. It gives priority to the
long-range view. Long-term thinking defuses many of the conflicts and contentions
among groups -- this applies to employment conditions and relations with employees as
well as to the conflicts and opposing interests of the trade and the industry. Of course,
our ability to focus on long-term considerations is only possible if the company is
successful in the struggle for short-term survival. This is why Nestlé strives to maintain
a satisfactory level of profits every year.

Decentralization

Switzerland is home to Nestlé's Swiss subsidiary, its international headquarters and the
registered office of Nestlé's holding company, but Nestlé does not regard its Swiss
headquarters as the center of the universe. Decentralization is a basic principle of
Nestlé. Our policy is to adapt as much as possible to regional circumstances,
mentalities and situations. By decentralizing operational responsibility, we create
strength and flexibility and are able to make decisions that are better attuned to specific
situations in a given country. Policies and decisions concerning personnel, marketing
and products are largely determined locally. This policy creates stronger motivation for
Nestlé's executives and employees and a greater sense of identification with Nestlé's
business. It is not Nestlé's policy to generate most of its sales in Switzerland,
supplemented by a few satellite subsidiaries abroad. Nestlé strives to be an "insider" in
every country in which it operates, not an "outsider."

Uniformity

A very important concern at Nestlé has to do with uniformity: how consistent Nestlé's
principles, policies, rules of conduct and strategies should be, and to what extent they

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should differ depending on the country, subsidiary, region, branch or group of products.
In general, Nestlé tries to limit the uniformity of its policy to a requisite minimum. This
minimum is then systematically enforced, unless there are compelling reasons in a
given market that justify deviation from policy.

Diversification

Nestlé does not want to become either a conglomerate or a portfolio manager. Nestlé
wants to operate only those businesses about which it has some special knowledge
and expertise. Nestlé is a global company, not a conglomerate hodgepodge. We regard
acquisitions and efforts at diversification as logical ways to supplement our business,
but only in the context of a carefully considered corporate marketing policy.

Nestlé is committed to the following Business Principles in all countries, taking into
account local legislation, cultural and religious practices:

• Nestlé's business objective is to manufacture and market the Company's

products in such a way as to create value that can be sustained over the long
term for shareholders, employees, consumers, and business partners.
• Nestlé does not favor short-term profit at the expense of successful long-term
business development.
• Nestlé recognizes that its consumers have a sincere and legitimate interest in
the behavior, beliefs and actions of the Company behind brands in which they
place their trust and that without its consumers the Company would not exist.
• Nestlé believes that, as a general rule, legislation is the most effective safeguard
of responsible conduct, although in certain areas, additional guidance to staff in
the form of voluntary business principles is beneficial in order to ensure that the
highest standards are met throughout the organization.
• Nestlé is conscious of the fact that the success of a corporation is a reflection of
the professionalism, conduct and the responsible attitude of its management and
employees. Therefore recruitment of the right people and ongoing training and
development are crucial.

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 • Nestlé continues to maintain its commitment to follow and respect all applicable
local laws in each of its

Research and development

The Nestlé research and development centers have two main tasks: to create new
products and manufacturing processes and to improve those that already exist. These
centers play a key role in product safety and quality and also have their role in
conserving resources and protecting the environment. Environmental concerns are an
integral part of any development process to ensure that our future commercial
operations meet the desired criteria.

The Nestlé Research Center provides the scientific support needed to prevent and
solve environmental problems arising in the development groups as well as
manufacturing. In addition, studies are carried out to find new ways of using industrial
residues to create value added byproducts. This will reduce total emissions and
effluents.

The Nestlé development centers prepare environmental impact studies for new
products and manufacturing processes. These cover all aspects, from raw materials,
through processing, to the final packed product. These analyses provide additional
elements for use in deciding whether to commercialize a new product, or to introduce a
new or modified process.

Foresight

At present, the world faces daunting questions about its ability to provide enough
wholesome food for everyone. Malnutrition and poor eating habits are still serious
problems in many developing countries. By 2100, the world's population will double. Will
it be possible to feed a world with so many inhabitants? At Nestlé, the big picture is all
about feeding the world and providing food and nutrition for an ever-growing population.
Our response to this situation is to intensify research, strive for innovations and improve
quality.

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Flexibility and simplicity

The public's sense of the power and size of a corporation is often inaccurate, for a
company's power is limited by a host of factors including legislation, competition,
regulatory bodies and publicity. From a business point of view, it is desirable for a firm
to achieve the size best suited to a specific industry or mode of production. To be
competitive internationally and make significant investments in research and
technology, a larger company has an advantage. From a strictly organizational point of
view, flexible, simple structures work best and excessively large units should be
avoided whenever possible. In both respects Nestlé has a natural advantage: Although
it is a big company, it is spread out over many countries and each of Nestlé's factories
has its own management and responsibility.

Handling of raw materials

The Nestlé Group is in principle not directly involved in primary production of raw
materials and other food ingredients. In general we use locally available raw materials
and purchase them either directly from producers or through existing trade channels.

Raw materials have to meet clearly established quality criteria and are checked for
possible contaminants including environmental contaminants. Our purchasing
specifications comply not only with legal requirements but go further to ensure highest
safety and wholesomeness of our products.

Whenever possible we give preference to those goods for which environmental aspects
have been taken into consideration. In those cases where the required agricultural raw
materials are not available locally, but the natural production conditions exist, we
encourage local production and provide assistance for cultivation and dairy farm
management.

We support plant growing and livestock husbandry methods which:

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 • preserve and improve natural soil productivity and economize and protect water
resources
• allow the lowest, most appropriate and safe use of agro-chemicals
• use the least energy.

Packaging

Manufacturing comprises all unit operations necessary to transform perishable raw

materials into finished products, with the aim to make them safe and convenient for the
consumers. The manufacturing activities of the Nestlé Group:

• respect natural resources by efficient use of raw materials and energy

• minimize waste generation and emissions
• ensure environmentally safe disposal of all waste which cannot be recycled.

Regular assessments of processing practices are carried out. These assessments

include:

• evaluation of individual plant performance with regard to operations which have

an impact on the environment
• definition of targets for improvement
• review of plant compliance with local government regulations, company
environmental standards, as well as results achieved in comparison with targets
for improvement
• full investigation of incidents which may affect the environment.

Information on developments in environmental protection technology and practices is

disseminated as required to ensure that all plants are using the most effective
environmental practices for their type of processing. This applies also for co packers.

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Marketing and distribution

Marketing is based on the principle of satisfying consumer needs. This is the foundation
also for the environmental marketing approach of Nestlé.

Environmental product claims in advertising, promotional material and on packaging are

in accordance with legal requirements, based on solid scientific evidence and used in a
serious and reasonable manner.

Our aim is to minimize wastage in communication, publicity and promotional material, in

particular through more precise targeting of marketing activities.

Consumer promotions and merchandising material such as consumer offers, instore

promotions, display material, leaflets, printed matter, etc. take environmental aspects
into account.

This means due consideration of environmental impact in selecting both materials and
printing methods.

In distribution, energy efficient and pollution controlled methods are encouraged

wherever possible.

Information, communication and education

Nestlé's policy is designed to provide correct and coherent information on the activities
of the Group.

Activities related to the environment benefit from the same treatment and their
communication is secured through all currently available means inside and outside the
Group.

It is furthermore Nestlé's duty to create awareness, to train and motivate employees on

their personal responsibility with regard to the protection of the environment.

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Legislation and regulations

It is the policy of the Nestlé Group to strictly comply with all laws and regulations
relevant to our activities. We participate in discussions on food legislation and
regulations between international organizations, government representatives, industry,
the scientific world and consumer associations. We also apply this policy to
environment related matters.

In doing so, we cooperate with legislators through local industry associations in order to
promote laws and regulations in the field of environment which are reasonable, rational,
realistic, applicable and enforceable. We oppose unjustified bans and any other
discriminatory measures.

We favor the harmonization of food regulations in order to remove existing trade

barriers and to avoid the creation of new ones. This applies also to environmental
issues. We favor the exchange of information, of experience and of knowledge between
the various interested parties.

Thanks to all these synergies, we can contribute to valuable discussions and be

recognized as an active partner in helping authorities to formulate comprehensive
strategies in the field of the environment.

NESTLE’S BRANDS

Quality and nutritional value are the essential ingredients in all of the nestle’s brands.
Millions of people prefer Nestlé products every day, happy with the addition to their
wellness that they bring. If you are looking for a specific brand our product, just use the
alphabetical index below to jump straight to a listing. Or you can explore by category.

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Baby Foods

The production of infant food goes right back to the origins of the Nestlé Company.
Henri Nestlé's 'Farine Lactée' was the first product to bear the Nestlé name.

In 1867 a physician persuaded Henri Nestlé to give his product to an infant who was
very ill — he had been born prematurely and was refusing his mother's milk and all
other types of nourishment. Nestlé's new food worked, and the boy survived. From the
very beginning, Nestlé's product was never intended as a competitor for mother's milk.
In 1869, he wrote: "During the first months, the mother's milk will always be the most
natural nutrient, and every mother able to do so should herself suckle her children."

The factors that made baby foods success in the early days of the Nestlé company —
quality and superior nutritional value — are still as valid today for the wide range of
infant formula, cereals and baby food made by Nestlé. The World Health Organization

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(WHO) recognizes that there is a legitimate market for infant formula, when a mother
cannot or chooses not to breast feed her child. Nestlé markets infant formula according
to the principles and aims of the WHO International Code of Marketing Breast Milk
Substitutes, and seeks dialogue and cooperation with the international health
community and in particular with the WHO and UNICEF, to identify problems and their
solution. Nestlé's expertise as the world's leading infant food manufacturer, gained over
more than 125 years, is put at the disposal of health authorities, the medical profession
and mothers and children everywhere.

Chocolate & Confectionery

The story of chocolate began in the New World with the Mayans, who drank a dark
brew called cacahuaquchtl. Later, the Aztecs consumed chacahoua and used the
cocoa bean for currency. In 1523, they offered cocoa beans to Cortez, who introduced
chocolate to the Old World, where it swiftly became a favorite food among the rich and
noble of Europe. Nestle forayed into chocolates & confectionery in 1990 and has
cornered a fourth share of the chocolate market in the country.. It has expanded its
products range to all segments of the market The Kitkat brand is the largest selling
chocolate brand in the world. Other brands include Milky Bar, Marbles, Crunch, Nestle
Rich Dark, Bar-One, Munch etc. The sugar confectionery portfolio consists of Polo,
Soothers, Frootos and Milkybar Eclairs. All sugar confectionery products are sold under
the umbrella brand Allen's. Nestle has also markets some of its imported brands like
Quality Street, Lions and After Eight. New launches such as Nestle Choco Stick and
Milky Bar Choo at attractive price points to woo new consumers. Chocolate
confectionery sales registered a strong 21.5% yoy growth in 2001 aided by good
volume growth in Munch, Kitkat and Classic sales. Nestle relaunched Bar-One during
the year.

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From the beginning, turning raw, bitter cocoa beans into what one 17th century writer
called "the only true food of the gods" has been a fine art, a delicate mixture of alchemy
and science.

Ice Cream

There are many myths and stories as to the invention of ice cream: was it Marco Polo
who brought it back from China (along with pasta)? Probably not, considering he most
likely never visited China.

The story of its popularity is however connected with the invention of technology to
make it on an industrial scale, and to keep it cold once made. Before refrigeration
techniques, food was frozen with the aid of ice, mixed with salt, which was either stored
in ice houses or shipped from cold countries. But then at the end of the 19th century,
both making and freezing it became easier, and together with the invention of the ice
cream cone, made the product boom.

Today, the United States is the absolute leader in terms of volume consumed, but the
highest per head consumers are in New Zealand. Flavors you'd never have thought of
and yet they're commercially available:

• Sorbets - Smoked Salmon, Tomato, Cucumber

• Ice Creams - Garlic, Avocado, Sweet corn.

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The ice cream cone is the most environmentally friendly form of packaging. A Syrian
from Damascus, Ernest E Hamwi is credited with its invention. Apparently, during the
1904 St Louis World's Fair, his waffle booth was next to an ice cream vendor who ran
short of dishes. Hamwi rolled a waffle to contain ice cream and the cone was born.

Prepared Foods

Convenience foods — packaged soups, frozen meals, prepared sauces and flavorings
—date back more than a century. With the Industrial Revolution came factory jobs for
women and less time to prepare meals.

The problem was so widespread that it became the object of intense study in 1882 by
the Swiss Public Welfare Society, which offered a series of recommendations, including
an increase in the consumption of vegetables.

The Society commissioned Julius Maggi, a miller with a reputation as an inventive and
capable businessman, to create a vegetable food product that would be quick to
prepare and easy to digest. The results — two instant pea soups and an instant bean
soup — helped launch one of the best known brands in the history of the food industry.
By the turn of the century, Maggi & Company was producing not only powdered soups,
but bouillon cubes, sauces and flavorings.

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.Maggi merged with Nestlé in 1947. Buitoni, the authentic Italian brand, which has
been producing pasta and sauces in Italy since 1827, became part of the Nestlé Group
in 1988.

Beverages

Beverages like coffee, tea and health drinks contribute to about 30% of Nestle’s
turnover. Beverage sales registered a 15% yoy growth during 2001. While about 14% of
sales come from domestic market, exports contribute to about 16% of sales.

Nestle's Nescafe dominates the premium instant coffee segment. Nestle’s other coffee
brand Sunrise has also been relaunched under the Nescafe franchise to leverage on
the existing equity of the brand. Nestle has focused on expanding the domestic market
through price cuts and product repositioning. However it has been losing share in the
domestic market, where it has a 37% market share. Milo, a brown-malted beverage was
launched in 1996. It has an estimated volume share of about 3% in the malted food
drink segment. Nestle has launched non-carbonated cold beverages such as Nestea
Iced Tea and Nescafe Frappe during 2001.

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Nestle is one of the largest coffee exporter in the country. Key export market is Russia,
besides Hungary, Poland and Taiwan. Nestle has received an award for highest export
of instant coffee and highest export of coffee to Russia and CIS for FY00 and FY01.
Turnover contribution from exports registered a 17.5% volume growth in F12/01.
Nescafe sales to Russia accounts for 80% (Rs2.5bn) of Nestlé’s Rs3bn export turnover.

Market share gains

Noodles

Nestle’s brand Maggi is generic to instant noodles enjoying a 53.0% share of market.
Nestle raised its market share in the instant noodles segment from 46.5% in March
2002 to 53.1 per cent in May 2003. Instant noodles still enjoy a low penetration and
sales are expected to grow through higher reach and increased consumption in future.
The chocolate category has recorded a four per cent growth.

Chocolates

Nestle has launched a range of chocolate and confectionery products and flavors in the
first half of the year and has been continuing to gain market share in the chocolate
category. Nestle’s market share in the chocolate category increased from 28.4 per cent
in May 2002 to 29.7 per cent in May 2003.

Infant foods

Nestle’s core category of weaning foods (market share 89.6 per cent for May 2003) has
seen the launch of Cerelac 123, a product which provides a better nutritional plan for
infants.

Coffee

The coffee category has been witnessing increased competition for Nestle, especially
from Bru. Hindustan Lever’s discounted instant coffee brand. Market shares for Nestlé’s

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coffee have increased from 39 per cent in May 2002 to 44.3 per cent in Feb 2003 but
have slipped back to 39.9 per cent in May 2003.

Company Financials:

Financial disclosures by company:

Nestlé India - FY 07 results by Mar 31, 2008

Nestlé India Ltd has informed BSE that the Company would be publishing Audited
Financial Results for the year ended on December 31, 2007 within stipulated period of 3
months after the year-end. The Audited Results would be considered at the Board
Meeting proposed in the month of March, 2008.

Consequently, the Company shall not be publishing the Un-audited Financial Results
for the fourth quarter ended on December 31, 2007.,

Nestlé India - FY 08 results by Mar 31, 2009

Nestlé India Ltd has informed BSE that the Company would be publishing Audited
Financial Results for the year ended on December 31, 2008 within stipulated period of 3
months after the year-end. The Audited Results would be considered at the Board
Meeting proposed in the month of March, 2009.

Consequently, the Company shall not be publishing the Un-audited Financial Results
for the fourth quarter ended on December 31, 2008.

Nestlé India announces Quarter three results of 2008; and Payment of Second Interim
Dividend for 2008 of Rs. 14.50 per equity share and Special Dividend of Rs. 7.50
pursuant to the Scheme of Arrangement.

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Nestlé India - FY 09 results by March 31, 2010

Nestlé India Ltd has informed BSE that the audited financial results of the Company for
the entire year ended December 31, 2009 would be submitted within the stipulated
period of three months of the year end and consequently the Company will not be
publishing the un-audited financial results for the fourth quarter ended December 31,
2009.

1. Dividend Policy:

Over the next few years, companies cannot afford to ignore dividends. Investors are
looking for higher payouts and need the assurance
Year Month Dividend (%)
of a stated dividend policy. During the last three
years it has been seen that Nestle India has been a 2010 Feb 215

consistent payer of a dividend (See table). It shows 2009 Oct 270

that the company has a strong belief that the
2009 Mar 210
earnings of the company should be distributed
2008 Oct 220
amongst the owners at the same time when it is
2008 Mar 110
earned. Among companies in the set, those that
have steadily increased the payout over the years 2007 Nov 240

include a number of multinational companies that 2007 Mar 80

also earn a high return on net worth. Nestle India
has enhanced dividends to deliver value to shareholders. This company does not seem
to be constrained for growth, either.

Separate dividend declared by the company:

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Nestlé India - Board declares Interim Dividend “2010”

Nestlé India Ltd have declared an interim dividend of Rs. 9.00 (Rupees nine only) per
equity share for the year 2010, which shall be paid on and from May 07, 2010 on the
entire issued, subscribed and paid-up equity share capital of the Company of
96,415,716 equity shares of the nominal value of Rs. 10/- each.

The Book Closure from 27th April to 28th April, 2010 would also determine the
shareholders entitled for the payment of the interim dividend for 2010; and

The final dividend for 2009 of Rs. 12.50 (Rupees twelve and paise fifty only) per equity
share, will be paid together with the aforesaid Interim Dividend for 2010 on and from 7th
May, 2010.

Nestlé India Board declares Interim Dividend 2009

Nestlé India Ltd has declared an Interim Dividend of Rs 9.00 (Rupees nine only) per
equity share for the year 2009, which shall be paid on and from May 15, 2009 on the
entire issued, subscribed and paid-up equity share capital of the Company of
96,415,716 equity shares of the nominal value of Rs 10/- each.

Nestlé India Board declares interim dividend 2008

Nestlé India Ltd, has declared an Interim Dividend of Rs 8.50 (Rupees eight and paise
fifty only) per equity share for the year 2008.

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 2. Capital Structure and Shareholding Pattern:

The capital of Nestle India solely consists of the equity shareholders funds. It means
that the company is free from any long term debt which normally increases the burden
of financial risk of an enterprise. In the year, 2007 the debts of the company were at
2.87 crores which gradually came down to zero in 2009 year end.

The major part of Equity shares are held by its foreign promoter, that is Nestle SA, FIIs
and Banks. Only 16% of shares are in public. The shareholding for the three years is
shown in the table:

Share holding

Sare holding pattern

as on : 31/03/2010 31/12/2009 30/09/2009
Face value 10.00 10.00 10.00

No. Of % No. Of % No. Of %

Shares Holding Shares Holding Shares Holding
Promoter's holding
Foreign Promoters 59629954 61.85 59629954 61.85 59629954 61.85
Sub total 59629954 61.85 59629954 61.85 59629954 61.85
Non promoter's holding
Institutional investors
Banks Fin. Inst. and
Insurance 6210104 6.44 5925755 6.15 5679828 5.89
FII's 9982131 10.35 9684554 10.04 9371877 9.72
Sub total 19205150 19.92 19070973 19.78 19214567 19.93

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 No. Of % No. Of % No. Of %
Shares Holding Shares Holding Shares Holding
Other investors
Private Corporate
Bodies 1634743 1.70 1649003 1.71 1597231 1.66
NRI's/OCB's/Foreign
Others 361375 0.37 378943 0.39 368734 0.38
Sub total 1996118 2.07 2027946 2.10 1965965 2.04
General public 15584494 16.16 15686843 16.27 15605230 16.19
Grand total 96415716 100.00 96415716 100.00 96415716 100.00

3. Financial Performance:

Given below is the key figures derived from the annual statements of Nestle India.

Year 2007 2008 2009

Sales (Rs in
Crores) 3,647.49 4,472.04 5,232.59
Operating Profit 684.15 839.98 1,028.76
Profit Before Tax 629.8 775.86 930.35
Reported Net
Profit 413.81 534.08 655
Earning Per Share
(Rs) 42.92 55.39 67.94
Equity Dividend
(%) 330 425 485

Networth 418.43 473.35 581.27

Total Debt 2.87 0.82 0.00

Total Assets 421.31 474.17 581.28

3.1 Sales Vs Operating Profitability:

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The Operating Profits of Nestle India has been rising consistently as an effect of
increase in turnover volume. In terms of percentage of total sales the Profit
before tax in the last three years was 17.27%, 17.35% and 17.78% respectively.
The Sales figures grew by 23% and 17% respectively over the previous financial
years, so as the operating profits, which registered a growth of 23% and 19%
respectively over the last financial years.

Sales vs Operating Profitability

Profit Before
Tax
2009
2008
2007
Sales (in
million
Rupees)

0.00 2,000.00 4,000.00 6,000.00

INR in crores

Sales vs Operating Profits

3.2 Sales Vs Profitability:

Very much similar to the operating profits the Reported Net Profits of Nestle India
has been rising consistently as an effect of increase in turnover volume and
consistent operating profits. In terms of percentage of total sales the Profit after

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 tax in the last three years was 11.35%, 11.94% and 12.52% respectively. The
operating profits registered a growth of 29% and 22% respectively over the last
financial years.

Profitability

6,000.00
5,000.00
INR in crores

4,000.00 2007
3,000.00 2008
2,000.00 2009

1,000.00
0.00
Sales (in million Reported Net
Rupees) Profit

3.3 Total Assets vs total Debt:

Nestle India is a completely debt free enterprise, which results in a lower degree
of financial leverage due to negligible amount of fixed costs in the books. Also,
lower amount of fixed costs has resulted in an enhanced value creation for the
share holders.

Year 2007 2008 2009

Net Worth 418.43 473.35 581.27
Total Debt 2.87 0.82 0.00

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3.4 Return on Assets:

The return on assets reflects the degree of potential of the firm to generate
returns out of the assets employed. It is calculated as the profit after tax upon the
total assets employed. For Nestle India the ROA has been moderate throughout
the period under analysis. The ROA for the company has grown marginally form
98% to 112% in 2008, registering a growth of 15%. While in 2009 the ROA has
remained the same at 112%.

Return on Assets

700
Net Profits (Rs. in crores)

600
500
400 Total Assets
300 Reported Net Profit
200
100
0
2007 2008 2009
Year

3.5 Earnings per Share:

Nestle India limited is one of the consistent performers from the point of view of
profitability among all companies within the industry. The earnings per share
measure the earned profit for each equity shareholder. During the period under
analysis the earnings per share has grown consistently from Rs. 43 to Rs 55 in
2008 and to Rs 68 in 2009.

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 Earning Per Share (Rs)

80
70 67.94
60
55.39

Rs per Share
50
42.92 Earning Per
40
Share (Rs)
30
20
10
0
2007 2008 2009
Ye a r

3.6 Share Price Movements:

Over a period of three years, the stock price of Nestle India has jumped to
almost double from the initial price of approximately Rs. 1200. Also at the end of
2009, it has shown an increasing trend. Also, when compared to benchmark
sensex, the stock has outperformed the benchmark with an evident margin. (See
chart below).

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Future Prospects: Nestle’s revenues and earnings to grow at a CAGR of 18%
and 21% respectively over CY09E – CY11E. With high visibility of revenue and
earnings growth, strong free cash flows and high dividend payouts, analysts
value the stock at a premium to other industry players. Analysts also initiate
coverage on Nestle trading at 24xCY’11E earnings with a BUY rating with a one-
year price target of Rs 3,384 at which the stock would trade at 30xCY’11E
earnings.

Conclusion

The processed foods sector, which currently accounts for less than 2% of total
food consumption in the country, is slated to grow at a fast pace. The Indian
Government has identified Food Processing as a high potential industry and has
been creating a policy environment conducive to its growth. MNC’s like Nestle as
well as domestic players have made aggressive investments in the sector.

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 Quantitative restrictions on import of several food products have been lifted,
leading to greater availability of imported products. MNC’s are able to offer a
wider product range, without the need to establish a manufacturing base. All of
these when combined together shows a healthy future for Nestle India.

News update from Nestle

News Headlines

• Nestle India Q1 net profit up at Rs 202 million

Analysis: In “April 2010” the Nestle India has announced its first quarter results.
The company's Q1 net profit was up at Rs 202 million versus Rs 197 million, of
last financial year. Its net sales were up at Rs 1,480 million versus Rs 992
million, which was of last year.

• Nestle Q1 beats forecasts with 6.5% rise

Analysis: In month of April this year “2010” Nestle, the world's biggest food
group, beat forecasts with a 6.5% rise in underlying first-quarter sales on
Thursday and reassured investors by repeating its full-year growth targets.

The maker of Nescafe coffee, Gerber baby food and Kit Kat chocolate bars was
upbeat in its outlook after seeing growth from all its regions and categories as it
looked for better sales and profit margin growth in 2010 compared to 2009.

Nestle, the world's biggest food group, beat forecasts with a 6.5% rise in
underlying first-quarter sales on Thursday and reassured investors by repeating
its full-year growth targets.

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 The maker of Nescafe coffee, Gerber baby food and KitKat chocolate bars was
upbeat in its outlook after seeing growth from all its regions and categories as it
looked for better sales and profit margin growth in 2010 compared to 2009.

• Nestle approves buying healthcare nutrition business

Analysis: Nestle India Ltd said on Monday its board has approved buying the
healthcare nutrition business of unlisted Specialist Food India. The transaction
would be effective from Jan. 1, 2010,

The healthcare nutrition business' revenue for the year ended March 31, 2009,
was 288 million rupees, it said.

The product portfolio of the healthcare nutrition business would give Nestle a
leadership position in nutrition, health and wellness segments,

• Buy Nestle India: Motilal Oswal

Analysis: Motilal Oswal is bullish on Nestle India and has maintained buy rating on
the stock, in its April 07, 2010 research report.

“Nestle India posted 14.9% volume growth in CY09, 200bp lower than its 16.9%
volume growth in CY08. Volume growth indicates pick-up towards the end of the
year. Volumes increased 13.6% in 9MCY09. "CY10 has also commenced as per
plan. Raw material costs, in particular the recent spike in milk solids and sugar
whose prices are at record high levels, continue to pose an ongoing challenge.
Nestle has a unique advantage as its parent has the largest R&D budget in the
entire processed food industry globally. Although the economic environment has not
completely stabilized yet, Nestle is confident of long term business prospects.

• Nestle may consider a bid for Cadbury

Analysis: Swiss food giant Nestle may consider a bid for Britain's Cadbury to
challenge a hostile 9.9 billion pound bid by Kraft Foods Inc and a potential move by
Hershey, Bloomberg reported on Sunday.

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Nestle is still weighing its options and may decide against a bid, Bloomberg said,
citing two unnamed people with knowledge of the matter. Nestle declined to
comment.

• Nestlé India - Crisil Rating

Analysis: Nestlé India Ltd. has informed BSE that the Company has been assigned
AAA rating with Stable Outlook indicating highest safety by CRISIL Ltd. for Long
Term Borrowing Programme of Rs. 50 Crores. CRISIL Ltd. has also reaffirmed the
P1+ rating indicating very strong safety for Short Term Debt Plan of Rs. 35 Crores.

The Company currently has negligible outstanding debt and has no immediate
borrowed plans.

• Nestlé India creates fresh milestones innovates with Kitkat to tap new
segments.

Analysis: Nestlé India Ltd has announced that in recent years the Company has
initiated various activities to make its chocolate business stronger and more
robust. Greater emphasis on consumer insights and Innovation & Renovation
enabled it to achieve milestones that have made this portfolio even more
relevant to the emerging lifestyles. In 2007 the Company has led growth in the
chocolate industry which grew at around 23%.

• Nestlé India - Change of Chairman and Managing Director

Analysis: Nestlé India Ltd has informed BSE that Mr. Martial C Rolland,
Chairman and Managing Director of Nestlé India Ltd, shall be leaving the
Company to take up a new assignment within Nestlé Group.

It is proposed that Mr. Antonio Helio Waszyk shall takeover as the Chairman and
Managing Director of Nestlé India Ltd, subject to necessary approvals. Mr.

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 Antonio Helio Waszyk is presently the Head of Food Strategic Business Unit,
Nestlé Group, Switzerland.

• Outcome of Annual General Meeting “year 2010”

Analysis: Nestlé India - Ltd has informed BSE that the members at the 51st
Annual General Meeting (AGM) of the Company held on April 21, 2010, have
approved the following:

1. Approved the Balance Sheet as at December 31, 2009 and the Profit and
Loss Account for the year ended on that date together with the Reports of the
Directors' and Auditors' thereon.

2. Approved final dividend of Rs. 12.50, per equity share for the year 2009 and
confirmed the two interim dividends of Rs. 9.00 and Rs. 27.00 per equity share,
already paid for the year ended December 31, 2009.

3. Re-appointed Mr. Ravinder Narain as a Director of the Company.

4. Re-appointed M/s. A. F. Ferguson & Co., Chartered Accountants, as the

Auditors of the Company upto the conclusion of the next Annual General
Meeting of the Company.

5. Appointed Mr. Antonio Helio Waszyk as Managing Director of the Company

for a period of five years with effect from October 22, 2009 and approved the
terms and conditions of appointment and remuneration.

6. Approved amendment in Article 127 of Articles of Association of the Company

to confer powers to the Board of Directors to appoint additional directors.

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• Nestlé India - Change of Directors

Analysis: Nestlé India Ltd has informed BSE that Mr. Rajendra S. Pawar, Non-
Executive Director of the Company resigned from the membership of the Board
of Directors of the Company, due to his business pre-occupations. Mr. Pawar
joined the Nestle India Board on October 01, 2001 and has also been member of
the Audit Committee.

The Board of Directors of the Company on April 22, 2010 also appointed Dr.
Rakesh Mohan as a Non-Executive Director of the Company.

• Nestlé India Resignation of Director

Analysis: Nestlé India Ltd. has informed BSE that Mr.Tejendra Khanna has
resigned from membership of the Board of Directors of the Company, with
immediate effect.

• Nestlé India declared interim dividend for 2006

Analysis: Nestlé House, Gurgaon,15th April 2006: The Board of Directors of

Nestlé India today declared an interim dividend for the year 2006, of Rs. 6/- per
equity share.

This will be paid to shareholders on and from 9th May, 2006 together with the
final dividend for the year 2005 of Rs. 2/- per equity share which was announced
earlier and is subject to approval by the shareholders at the Annual General
Meeting on April 25, 2006.

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References:

1. www.moneycontrol.com
2. www.money.rediff.com
3. www.icicidirect.com
4. www.nestle.in
5. www.valuenotes.com
6. www.google.com

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