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Nestle India to enter breakfast cereal market

Though the company is a late entrant in the breakfast cereal space, company’s brand equity may help in capturing the opportunity in the growing cereal space

Nestle India (NIL) has announced the launch of breakfast cereal in India, in-line with its vision to introduce nutritious and healthy products. Nestle India will be adding Nestle Breakfast Cereals from Cereal Partners Worldwide (CPW) to its existing portfolio in this year. CPW is a 50:50 Joint Venture (JV) between Nestle S.A, Switzerland and General Mills Inc., United States to produce and sell breakfast cereals globally.

Through this JV, Nestle is among the leading players in breakfast cereals globally competing with Kellogg’s and PepsiCo (Qaker Oats). As per industry reports, the breakfast market in India is estimated at Rs1,500cr and is expected to cross Rs2,500cr by 2020. The demand for convenience based foods by the consumers is expected to drive the growth.

The major brands in India in the cereal category are the MNCs – Kellogg’s and PepsiCo and local players Marico (Saffola Museli and oats), Bagrry’s. Nestle is already present in breakfast cereal brand Ceregrow for Indian kids. We believe this launch of breakfast cereals will augur well with the company’s intention to capture the Indian breakfast space. It had earlier launched healthier options under Maggi brand – Atta and oats Noodles varieties to capture the breakfast space. It is also been focusing on nutrition and has come up with iron-fortified Maggi Noodles, fortified milk and vitamin fortified ready-to-drink malt beverage Milo.

For CY17, Nestle clocked GST adjusted domestic sales growth of 11.8% (fastest in last six years) led by volume growth of ~8%. Under GST, NIL has witnessed reduction in indirect taxes for majority of its products, which augurs well for both, volume and gross profit growth. Given the aggressive product launches and tax and supply chain benefits under GST, we factor 8% revenue CAGR for NIL over CY18-12E. Led by gross profit expansion, EBITDA margin is expected to witness ~150bps expansion over the same period to ~24%. PAT is expected to clock in 11% CAGR.

Nestle India Ltd ended at Rs9,134 up by Rs17.05 or 0.19% from its previous closing of Rs9,116.95 on the BSE.

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