Tag: Nestle India

Bottomline | Institutional activism in India is set to rise

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The defeat of Nestle’s resolution to up royalty payments to its parent is a sign of the changing times and this can spell good news for minority investors in the times to come.

What’s more significant is the growing trend of investor activism, which is good for minority investors who look to earn returns from investments in listed equities. 

Having voices at high tables that will bat to protect their interests is a welcome change. Is this a durable trend or just an aberration? 

There are pointers to suggest the former is more likely. But before we go there, let’s first take a closer look at what transpired at the Nestle shareholder meeting.

Dissent Against Royalty

Shareholders of Nestle India voted against a resolution to raise royalty payments to its parent towards its research and development support by 0.15% a year for five years, taking the payout from the current 4.5% to 5.25% by the end of the period. 

According to reports, a key reason for the dissent was the lack of justification for such a payout, given the Indian unit’s contribution to research and development spending relative to its share of global revenues. 

Be that as it may, it’s notable that several foreign investors and some leading domestic institutions may have voted against the move, exercising their franchise. On the other hand, most non-institutional investors towed the management line.

Of the institutional shareholders, 71% voted against the move, while of the non-institutional investors, barely 2% expressed opposition. This clearly indicates that activism was clearly driven by institutions, and this is likely to be a key trend going forward.

Source: BSE

Rising Institutional Activism

That institutional voter activism is on the rise is quite discernible, but it is still not significant given the relatively low holding in most companies. 

Investor advisory firm IiAS, in its annual voting study published last June, observed that “institutional shareholder dissent across resolutions is increasing, reflecting their changed approach: where previously the focus was on financial numbers, many now focus on compensation, capital allocation and transparency.” 

The numbers from the report indicate that of the 4,991 resolutions put to vote by NIFTY 500 companies in 2022, only 24 were defeated.

Institutional investors voted against 6.3% of the resolutions as compared to 5.6% in the previous year.

The growing number and type of institutional investors putting their money in India are also driving activism. 

This is leading to the growing role of proxy advisors applying global governance standards to Indian companies. 

IiAS observes in the case of Linde India, which could well apply to Nestle: “Global companies struggle to deal with listed subsidiaries in India, given that in most markets they operate through wholly owned subsidiaries. They need not. 

The same governance framework that applies to the parent and globally should also apply to businesses in India. Loyalty to the parent is one thing, but it cannot be at the expense of the Duty of Care owed to public shareholders of a listed company.”

SEBI on the front foot

A more proactive and “no-nonsense” approach from the Securities and Exchange Board of India (SEBI) is likely to embolden minority investors.

 The market regulator took a tough stance against the promoters of Zee Entertainment with respect to the alleged misappropriation of funds. Promoters Subhash Chandra and Punit Goenka were barred from holding office in group entities. 

More recently it called for an independent valuation by an NSE appointed valuer to ascertain the division of business between Linde India and group arm Praxair, in order to protect minority investors. 

Even with respect to the allegations regarding ICICI Bank staffers influencing shareholders of ICICI Securities, the regulator is reportedly examining the matter.

Such instances have sent out a clear message that transparency and minority interest protection are priorities for the market regulator. 

India on the rise

India’s ambition to become the third-largest economy in the world by 2031 and a developed economy by 2047 is likely to keep the economy high on the interest radar for foreign investors and global businesses. 

Given this, few would like to send the wrong signals to regulators or local investors. 

The growing geopolitical tensions, which are increasingly leading to the US and China distancing themselves, are also likely to work in India’s favour. 

Add to this the production-linked incentives that are drawing more investments in manufacturing and India’s large affluent class, and you have a heady cocktail for foreign money.

The need for public activism

While institutions are becoming more vigilant, it is also time for other public shareholders to take an active interest in the companies they have stakes in. 

Individuals, too, need to start voting with their feet. Only then will minority investors truly have their say. 

Here’s to a brighter future for businesses and investors, with better governance, greater accountability, and protection from moves against the larger good.

ALSO WATCH: How experts reacted to the shareholder vote rejecting the increase in royalty

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Nestle India shareholders vote against increase in royalty payment to parent company

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As many as 70% of Nestle India’s public shareholders and 57% of total shareholders have voted against the increase in royalty payment to the parent company.

The resolution that was being considered included paying as much as 3.25% net of taxes of the net sales of the company’s products to its parent company Societe des Produits Nestle SA. The same was to be paid in a staggered manner over five years with an increase of 0.15% per annum over the current royalty of 4.5% per annum, effective from July 1, 2025.

Recently, Nestle India’s CMD Suresh Narayanan had told CNBC-TV18 that the royalty increase that was being looked at was “relatively modest”.

“The ask is fundamentally 15 bps each year for five years. And certainly, the margin evolution of the blue categories that we are capable of doing in our existing categories is more than that,” Narayan said, adding that the increase in royalt was for help and suppor.

He said as a result, Nespresso, pet care, and more will require strong support from the group to make it happen. “All of this will come in at the heft of the parent, in terms of technology, competence and infrastructure. For this, the royalty increase that is being looked at is relatively modest,” he had told CNBC-TV18.

The company’s EBITDA margin for the fourth quarter expanded by 270 basis points to 25.4%, from last year’s 22.7%. It was also 100 bps higher than Street estimates of 24.4%

The company witnessed a 9.1% increase in revenue during the March quarter at ₹5,268 crore. It was slightly higher than Street estimates of of ₹5,180 crore. It was also the first instance of the company’s domestic sales crossing the ₹5,000 crore mark.

The company’s net profit for the fourth quarter increased by 27% from the previous year to ₹934 crore. It was also higher than Street estimates of ₹850 crore.

Its earnings before interest, tax, depreciation and amortisation (EBITDA) stood at ₹1,337.7 crore, registering a growth of 21.8% from the year-ago period and was higher / lower than the ₹1,265 crore expectation.

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Nestle India testing zero-sugar variant for infant food: CMD Suresh Narayanan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nestle India is testing a zero-sugar variant for infant food in the country. Sharing this during an exclusive interaction with CNBC-TV18, chairman and managing director Suresh Narayanan emphasised the company is compliant with the law of the land and has provided samples to the Food Safety and Standards Authority of India (FSSAI).

Narayanan said the company has reduced added sugar by 30% over the last two years in its products.

Highlighting the nutritional value of its flagship product, Ceralac, the CMD assured consumers that it meets all necessary nutrition parameters.

Nestle India is facing scrutiny from food safety authorities for allegedly adding sugar and honey to its infant milk and cereal products in various countries, including India.

A recent Public Eye investigation found a disparity in the company’s product formulations between affluent nations and developing regions.

In India, for instance, popular Nestlé baby-food brands were found to have high levels of added sugar, with each serving of Cerelac baby products averaging nearly three grams of sugar.

Narayanan sounded optimistic about Nestle India’s growth prospects, targeting to bring back volume growth, while adding that the company aims for a robust revenue growth of 10–11%, coupled with healthy margins ranging between 20% and 22%.

On Nestle India’s joint venture with Dr. Reddy’s, the CMD said it presents a significant opportunity, with anticipated revenues of ₹1,000–1,500 crore within a year or two of launch.

Narayanan also revealed plans to introduce Nespresso in India over the next five years, with a firm commitment to maintaining quality while ensuring competitive pricing.

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Nestle baby-food scandal | Why this health food maker has double standards in low-income countries

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A rather alarming article came up on my LinkedIn feed this week. The article claimed that Nestle adds sugar to the company’s infant milk sold in poor nations, but not in Europe or the UK. According to the article, Nestlé’s Cerelac  for six-months-old babies has 6 grams of sugar added per serving in Thailand, 5.2 in Ethiopia, 4 in South Africa, 2.7 in Pakistan and 2.2 in India – compared to 0 in the UK and Germany.

In somewhat of a disbelief, I researched the subject further, and what I discovered is enraging; In a nutshell, large scale food companies are selling ultra-processed and overly sweetened food products to poor and lower income countries – sometimes even advocating them as ‘good for the health’ – all while lowering the sale of such foods in western countries.

In an article published in The Guardian, it is stated that 55% of people surveyed around the world eat a meal consisting of snack foods at least once a week; this number rises to almost 2\3 in Asia. These snacks have become more common globally, as people are forced to eat in a rush — either on the way to work, or on the way to school.

When cooking or eating home-cooked meals becomes impossible due to schedule, factory-made, empty calorie, processed foods take over as a solution. According to the same article, sales of ultra-processed foods in developing countries have doubled between 2006-2019, after having saturated the market in richer countries (In the US, 57% of the dietary intake consists of ultra-processed foods). A research done in Australia showed that the total sales of ultra-processed foods in developing countries will be equivalent to those in rich countries by 2024.

This phenomenon can be attributed to several reasons. Firstly, developing nations present large food companies with a profitable market expansion opportunity — with a rapid growth of investment in local factories in middle-income countries. Secondly, lobbying and political interventions to delay or weaken regulations on such products’ marketing was found to be easier, and successful – in Colombia, for example, a soda (sugary) tax bill was delayed thanks to the works of some 90 lobbyists.

Such lobbying was also seen in countries like South Africa, Mexico, Thailand and Brazil. Thirdly, the west has seen a growing awareness of healthy food consumption — and the health risks linked to ultra-processed foods — leading to a decrease in sales. This, alongside the aforementioned issues, has led companies to expand their operations in lower-income countries.

This phenomenon has led many health organisations to call for bans on ultra-processed and high in sugar foods altogether — the WHO has already suggested such a ban in 2019. Calls to stop the flooding of the second and third world with such foods have also been raised, while warning of a global health crisis. Medical Research published in western countries has shown clearly that consumption of such foods is linked to the increase of diseases such as type 2 diabetes, obesity, and cancer, and more recent research done in developing countries shows similar results. In an article from 2019, the WHO pointed to a ‘new nutrition reality’ in low-income countries, where famine, malnutrition and food-quality-caused obesity represent equally significant problems.

I have personally engaged with projects targeting diabetes and obesity in India, and the numbers are harrowing; The National Family Health Survey of India (NFHS, 2019-2021) found that within the age group of 20-79, India had 74.9 million diabetics in 2021. The WHO estimates that nearly 77 million people above the age of 18 suffer from type 2 diabetes, 25 million are prediabetic, and over 50% are unaware of their diabetic status.

A 2023 study by Lancet estimated this number to be as high as 100 million.  According to a Forbes article, obesity was seen in nearly a third of the Indian population. These trends of increased sickness are attributed, amongst other reasons, to the increase of high carbohydrate and processed foods in the populations’ diet, rural and urban alike. 

Following the reveal in Nestle’s actions, India has begun seeking investigations into these allegations. Adding sugar to children’s diet combined with eating packed snacks is undoubtedly one of the reasons behind the high incidence and prevalence of diabetes in India. Unfortunately, the longer term outcomes and complications of such disease burden is yet to come.

Adding sugar to baby food is enraging three times over; while large food corporates, who take advantage of everyday life and challenges, such as schedule, climate change and economic limitations,  lead adults to eat more unhealthy foods — they are nonetheless adults, and could have some degree of choice regarding their diet. However, that does not apply to children, and young babies — who are being fed high-sugar foods and formulas by their unsuspecting parents.

Moreover, we simply cannot and must not accept the companies’ hidden assumption that life in the west is worth more than life in developing countries — what is unhealthy and dangerous to people on one side of the globe, should be considered the same on the other side. The opposite should actually happen: lessons learned from developed countries should be implemented in developing countries so that future disease burden could be prevented. 

This taking advantage of people living in poorer, often more corrupt countries is hypocritical at best, and cynically cruel at worst.

Allow me to end my column with a question — how far are food companies willing to go for profit? Have they not risked enough lives already?

—The author, Sigal Atzmon, is Founder and CEO of Medix Global, a multinational medical science & tech company, which pioneered in the concept of directing and monitoring the full potential of expertise, treatment & technology to people’s most critical health needs. The views expressed are personal. 

Read her previous articles here.

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Nestle India gains 3% on launch of Nespresso in India, JV with Dr Reddy’s Laboratories

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nestle India Limited shares jumped more 3% on Thursday after the company announced the launch of its premium coffee brand Nespresso in India and a Joint Venture with Dr Reddy’s Laboratories.

The company announced that Nesspresso will be rolled out in Indian markets by the end of 2024.

In a stock exchange filing, the consumer goods major said that it will undertake the sales and distribution of Nespresso products, including machines and capsules, through its distribution network, online channels and boutique outlets. These will be carried out through commercial agreements with Nespresso and third parties.

The rally in the Nestle share price was also aided by strong Q4 results and dividend announcement.

Nestle India Q4 results beat estimates

Nestle India’s revenue jumped 9.1% in the March quarter of FY 2023-24 to ₹5,268 crore, marginally up from the CNBC-TV18 poll estimates of ₹5,180 crore. This is also the first time the company witnesses its domestic sales surpassing the ₹5,000 crore mark.

The company’s profit after tax (PAT) in Q4FY24 increased 27% year-on-year to ₹934 crore. The net profit was above the CNBC-TV18 poll estimates of ₹850 crore.

Its earnings before interest, tax, depreciation and amortisation (EBITDA) increased 21.8% YoY to ₹1,337.7 crore compared to the March 2023 quarter.

The EBITDA margin improved by 270 basis points to 25.4% YoY in Q4FY24.

The company’s Board of Directors at the meeting held on April 25 also recommended a final dividend of ₹8.5 per equity share of ₹1/ each for the 15-month financial year ending March 31, 2024. This dividend pertains to the entire issued, subscribed, and paid-up share capital of the company, which comprises 9,64,157,160 equity shares of a face value of ₹1 each.

JV with Dr Reddy’s Labs

Nestle India Limited also announced the Board nod to a definitive agreement to form a joint venture (JV) with Dr Reddy’s Laboratories Limited. This JV aims to integrate Nestle Health Science’s global range of nutritional health solutions with the nutraceutical portfolios and established commercial strengths of Dr. Reddy’s. The joint venture is likely to commence operations in the second quarter of the financial year 2024-25.

Shares of Nestle India were trading 2.19% higher at ₹2,557.7 apiece, on the BSE at 1.20 pm.

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Nestle India Q4 Results: Revenue, profit beat estimates; JV announced with Dr. Reddy’s Laboratories

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nestle India Ltd. reported revenue growth of 9.1% during the January-March period. The ₹5,268 crore figure was slightly higher with expectations of ₹5,180 crore, according to a CNBC-TV18 poll. It was the first instance of Nestle India’s domestic sales crossing the ₹5,000 crore mark.

Net profit for the period also increased by 27% year-on-year to ₹934 crore. A CNBC-TV18 poll had pegged the figure at ₹850 crore.

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) stood at ₹1,337.7 crore, registering a growth of 21.8% from the year-ago period and was higher / lower than the ₹1,265 crore expectation.

EBITDA margin expanded by 270 basis points from last year to 25.4%. Last year, Nestle India reported a margin of 22.7% during the same quarter. The margin was also 100 basis points higher than the CNBC-TV18 estimate of 24.4%.

“If you focus purely on earnings, I think it’s very impressive. Margins of 25% plus, definitely, for a base like this, for a player like this with a scale like this, it’s definitely very good,” said Prakash Diwan, Market Expert. ”

Nestle India has entered into a Joint Venture with Dr. Reddy’s Laboratories for investing in Dr. Reddy’s Nutraceuticals Ltd.

The Joint Venture will see Nestle India hold a 49% stake and also have a call option to increase the shareholding after six years at a fair market value. Even after Nestle India exercises the Call Option, Dr. Reddy’s will continue to hold no less than 40% stake in the JV.

Here’s how Nestle India’s various business segments have fared:

• Beverage: Robust performance with Nescafe introducing its coffee to over 30 million households across India in seven years.
• Milk Products and Nutrition: Strong growth despite inflationary pressures.
• Prepared Dishes and Cooking Aids: Strong growth across portfolio led by Maggi Noddles and Maggi Masala-Ae-Magic. India is now the world’s largest market for Maggi globally.
• Out-of-Home: Strong growth with e-commerce now contributing to 6.8% of overall sales.
• Exports: Delivered good growth with Maggi noodles and sauces witnessing increased demand in key markets like Canada, the US, Australia, New Zealand and Singapore. Nescafe Sunrise continued to gain traction in established markets like Singapore and Taiwan, while also being exported to Canada for the first time.

Nestle India’s board has also approved a dividend payout of ₹8.5 per share.

“What we have seen with Nestle is that Nestle is a company, which has a very strong product profile, they have been able to consistently churn out, improve their product profile, and ride the premiumisation trends in India very strongly,” said Naveen Kulkarni of Axis Securities. “I think that Nestle is in a very strong position, and they should be able to address these issues (Cerelac) very well and manage their long term growth trajectory at a reasonably strong pace,” he added.

Shares of Nestle India have given up gains post the earnings announcement and are currently trading flat at ₹2,499. The stock has risen 22% over the last one year and also had a 1:10 split recently.

This is a developing story.

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FSSAI orders probe against Nestle and other baby food manufacturers, say sources

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Amid reports of Nestle selling baby food products with higher sugar content in the country, the Food Safety and Standards Authority of India (FSSAI) has ordered a detailed probe to assess the alleged violation, sources told CNBC-TV18.

Scientific committee is examining the matter and a report of the committee is expected in a month’s time, according to sources. Following the report, FSSAI will evaluate the action to be taken.

Meanwhile, not just Nestle, all other brands selling baby food and formula milk are under India’s food and safety regulator’s scanner. Sources added that FSSAI has ordered a probe against all brands or companies selling baby food and infant formula milk, to assess whether norms are being adhered to or not.

All the brands that sell infant formula milk and baby food available in the market will be examined and strict action will be taken against those who are not adhering to the prescribed guidelines, sources added.

After reports alleging of baby food sold by Nestle in India having additional sugar content and not as per global norms, Union Consumer Affairs Ministry had asked FSSAI to “initiate appropriate action” against the company.

In a letter to the FSSAI CEO G Kamala Vardhana Rao on April 18, Consumer Affairs Secretary Nidhi Khare said, “As per the news reports, Public Eye, an investigation agency based in Switzerland has published a report highlighting concerning findings about Nestle’s manufacturing practices in India. According to the report, Nestle has been alleged to add 2.7g of sugar per serving to Nestle Cerelac baby cereals sold in India while refraining from such practices in other countries such as Germany, Switzerland, France and UK.”

According to the Food Safety and Standards (Foods for Infant Nutrition) Regulations 2020, the percentage of lactose and glucose shouldn’t exceed 20%.

According to guidelines, lactose and glucose polymers shall be the preferred carbohydrates for food for infant nutrition. Sucrose and/or fructose shall not be added, unless needed as a carbohydrates source, and provided the sum of these does not exceed 20% of total carbohydrate, the guidelines added.

However, Nestle India last week issued a clarification responding to the recent controversy surrounding the sugar content in its Cerelac baby food products with a clarification.

“We would like to assure you that our infant cereal products are manufactured to ensure the appropriate delivery of nutritional requirements such as protein, carbohydrates, vitamins, minerals, iron etc. for early childhood.” Nestle India said.

The company said that they never compromise and will never compromise on the nutritional qualities of the products. To enhance the nutritional profile of their products, the company constantly leverages its global research and development network.

“Reduction of added sugars is a priority for Nestlé India. Over the past 5 years, we have already reduced added sugars by up to 30%, depending on the variant. We regularly review our portfolio and continue to innovate and reformulate our products to further reduce the level of added sugars, without compromising on nutrition, quality, safety, and taste.” Nestle India added.

“We always encourage to minimise the percentage of sugar every few days. We also run state connect and interact programs with business associations for good manufacturing practices.” Nestle India said.

The controversy came to the fore when a report was released by a Swiss NGO – the Public Eye and International Baby Food Action Network (IBFAN), claiming that Nestle’s baby food products sold in India, as well as in African and Latin-American countries, have higher sugar-products sold in European markets. 

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Maggie Noodles Case: Consumer redressal body rejects old govt complaint

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nestle India Ltd announced in a stock exchange filing on Thursday, April 4, that the National Consumer Dispute Redressal Commission (NCDRC) has ruled in favour of the FMCG major, dismissing the government’s 2015 plea against the sale of Maggi noodles. The government had sought compensation of ₹284.55 crore along with punitive damages of ₹355.41 crore.

“Complaint filed by the Union of India, Department of Consumer Affairs in 2015 before the NCDRC on the allegation that by selling Maggi noodles in the past, the company had indulged in unfair trade practice by manufacturing and selling of hazardous and defective goods to the public and thereby seeking compensation of ₹284.55 crore and punitive damages of ₹355.41 crore, was dismissed by NCDRC in favour of the company vide NCDRC’s Order dated April 2, 2024. Copy of the said order was received by the Company on April 3,” the company informed exchanges.

The controversy surrounding Maggi erupted in June 2015 when the popular instant noodle brand was banned nationwide for six months due to allegations that it contained chemicals beyond permissible limits. This led to the recall and destruction of 38,000 tonnes of Maggi noodles from retail shelves across the country. However, the ban was subsequently relaxed in November 2015.

Earlier, on Wednesday (April 3), domestic research firm Emkay Global initiated coverage on the stock with a ‘reduce’ rating. The brokerage has initiated coverage on the stock with a reduced rating and has a price target of ₹2,650 per share, implying an upside of just 1% from Tuesday’s closing price.

The Nestle India share price settled flat in the red at ₹2,551 on the NSE. The stock has plunged 6.52% so far this year, while it has risen 30% in the last one year.

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Nestle India under pressure as Emkay initiates coverage with ‘reduce’ rating

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of food and beverages major Nestle India Ltd. succumbed to selling pressure in the morning session on Wednesday (April 3) after domestic research firm Emkay Global initiated coverage on the stock with a ‘Reduce’ rating.

The brokerage has initiated coverage on the stock with a reduced rating and has a price target of ₹2,650 per share, implying an upside of just 1% from Tuesday’s closing price.

Going ahead, Emkay sees Nestle India’s stock re-rating is restrained by pressure on return on equity (ROE) and return on Capital Employed (ROCE), and it awaits for a better entry opportunity. It said a strong pricing power is an added advantage and a likely factor for faster margin recoup.

According to the brokerage, the company is among the prime beneficiaries of heightened consumer adoption of packaged foods. The current capex cycle of ₹6,400 crore for CY20-25 is likely to support the company in addressing segment demand more effectively, it said.

Also, Nestle India’s thrust on penetration-led volume growth is helping it outperform sector volume growth, Emkay said in a note.

The brokerage highlighted that any consumption slowdown in the formal sector would be a downside risk, while the capability of utilising enhanced capacity and driving innovation would be an upside risk.

At 12:20 hours, Nestle India shares were quoting at ₹2,558.60, down ₹64.70, or 2.47% on the NSE. It has touched an intraday high of ₹2,623.95 and an intraday low of ₹2,545.

The stock has plunged 6.52% so far this year, while it has risen 30% in the last one year.

In terms of technicals, the relative strength index (RSI) of the stock stands at 57.2, signaling it’s trading neither in the overbought or oversold zone. The counter has a one-year beta of 0.3, indicating very low volatility.

The stock is trading lower than the 5 day, 10 day, 20 day, and 30 day, but higher than 50 day, 100 day, 150 day and 200 day moving averages.

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