1

REPORT ON
FINANCIAL STATEMENT ANALYSIS OF
NESTLE INDIA LTD.

PREPARED BY-
ASHWIN K (032)
JATIN KUMAR MAHESHWARI (062)
LAKSHMI NARASIMHAN (072)
MILAN AGARWAL (081)
MISHA NIGAM (172)
MONINTHAR KUMAR NAYAK (082)
2

TABLE OF CONTENTS
I. Purpose and Scope …………………………………………………………………..................... -2-
A. Objective of the Research ………………………………………………………………………..………….…. -2-

B. Data Sources ………………………………………………………………………………………………………….. -2-

C. Research Methodology …………………………………………………………………………..………..…….. -2-

II. Analysis of Financial Statements (Ratio Analysis)….……………………………… -3-

A. Balance Sheet ………………………………………………………………………………………..……….……… -3-

B. Income Statement …………………………………………………………………………………………...…….. -8-

C. Cash Flow Statement ………………………………………………………………………….………….………-10-

D. Financial Statement Ratios …………………..……………………………………………………………… -11-

E. Other important values …………………………………………………………………….….……………… -15-

III. Percentage contribution to sales (2015)….…………………………………...…..…-17-

IV. SWOT Analysis………………………………………………………………………………..……..-17-

V. Major Competitors ………………………………………………………………………….……..-17-

VI. Results…………………………………………………………………………………………………. -18-

A. Major and Minor Finding ………………………………………………………………………………..…....-18-

B. Conclusions …………………………………………………………………………………………………………..-18-

C. Projections …………………………………………………………………………………………………………...-19-

VII. Works Cited……………………………………………………………………………………..... -22-

3

I. PURPOSE & SCOPE

A. Objective of the Research

The objective of this paper is to thoroughly analyze Nestle India Ltd’s financial
history and status for the last five years (2011 – 2015). Also, Nestle India’s future
growth and financial stability for the next two years will be examined (forecast for
2016-2017). Other important topics will be discussed which include: the growth in
net income, the growth in sales revenue, the growth in operating income, the
growth in assets, and the growth in various and significant costs. Moreover, MVA,
EVA, earnings per share, movements of the stock prices in the past, and the capital
structure of will be examined. To support the analysis, different relevant ratios will
be calculated for the company in order to estimate its current status, and also to
compare Nestle India Ltd. to Britannia Ltd.

B. Data Sources

Based on the sources cited above, the following tables were extracted or created:

• Nestle India Ltd’s Balance Sheet, Income Statement and Cash Flow Statement
• Comparative Historical Total Assets growth analysis
• Nestle India Ltd’s Asset Structure – Common Size
• Nestle India Ltd's 5 Yr. Common Size Balance Sheet
• Comparative Balance Sheet, Income Statement, Cash Flow Statement & Ratios
• Nestle India Ltd’s 5-year Average Ratio Report

C. Research Methodology

The financial analysis of Nestle India Ltd is based on evaluating company and
industry data from various sources. A trend analysis was performed using data for
the last five years, and presented in Excel charts and tables. A vertical analysis was
performed, which also involved an industry comparison. Common-size statements
were created, where each item was shown in percentage terms from a common
base. In the case of a firm’s assets, I treated the total assets as equalling 100.
4

II. ANALYSIS & FINANCIAL STATEMENTS

Nestle’s fiscal year always ends in the end of December. The following results have
been collected and following graphs have been drawn and interpretations drawn:

A. BALANCE SHEET RATIOS

1. ASSET GROWTH:

Asset Growth
70000

60000

50000
Fi xed Assets
Inventories
40000
Ca s h&Bank
Loa ns&Adv
30000
Tra de Receivables
Current As sets
20000
Tota l Assets

10000

0
2010 2011 2012 2013 2014 2015

 TOTAL ASSETS:-
The Total Assets of the company has decreased over the years and there has been a
decline in growth over the years with the exception of Dec-15 where it showed a
growth of 4.48% to the base year 2010.
5

Year 2011 2012 2013 2014 2015

Total Assets 44017.8 51639.2 63142.7 58195 60804.6
Percentage
Growth %
72.00 17.31 22.27 -7.83 4.48

Total Current Assets:

Current assets have increased over the years with the exception of Dec-14 where it
displayed a dip in growth of -15% in 2014. The growth for the past year has been
high showing 26% in 2015 compared to its previous year.

Year 2011 2012 2013 2014 2015

Total Current
12903.4 14901.2 23017.2 19636.7 24796.1
Assets
Percentage
23% 15% 54% -15% 26%
Growth

2. ASSET STRUCTURE:

Asset Structure Analysis

70.00%

60.00%

50.00%

Fi xed Assets
40.00% Inventories
Ca s h&Bank

30.00% Loa ns&Adv

Tra de Receivables
Current As sets
20.00%

10.00%

0.00%
2010 2011 2012 2013 2014 2015
6

The current assets form a significant portion of the total assets as FMCG companies
do not have lot of Non-Current assets. Inventories form a major portion of the
current assets over the years, contributing to 35% of it on an average. Inventories
are valued at the lower of cost and net realisable value. Cost is computed on a
weighted average basis. The percentage of trade receivables has been increasing
very slightly over the years indicating the company is not providing much on credit.
In the non-current assets, long term loans have not changed significantly. Cash and
bank balance has been increasing on an average of 8 to 9 %.

3. LIABILITIES AND EQUITY GROWTH:

Total liabilities and Equity has increased over the years. Out of the liabilities and
Equity, trade payables form a major part contributing to over 35-45% over the years.
Long term provisions include Provision for employee benefits (pension, medical,
compensated absences and others).Provision for income tax (net of advance tax)
and other provisions (including for statutory levies etc.

Liability & Equity Growth

70000

60000

50000
Sha reholdersFund

40000 Longterm Borrowings

Other Current Li abilities
Longterm Provisions
30000
Tra de Pa yables
Current Li a bilities
20000 Tota l Liabilities

10000

0
2011 2012 2013 2014 2015
7

TOTAL LIABILITIES:

Total Liabilities have decreased over the years showing a growth of 22.907% in the
year ending 2013.The growth has been around -8% for the year ending 2014 and
and started to increase by 4% by the end of 2015.

2011 2012 2013 2014 2015

Year
Total Capital And
44017.8 51639.2 63142.7 58195 60804.6
Liabilities
72% 17% 22% -8% 4%
Percentage growth

RESERVES AND SURPLUS:

There was an increase in the reserves and surplus over the years till 2014. The
reserves and surplus growth has declined marginally in the year ending 2015 when
compare to the year before.

2011 2012 2013 2014 2015

Year
Reserves and
11775.41 17019.9 22723.3 27407.9 27214.2
Surplus

4. FINANCIAL STRUCTURE ANALYSIS:

Financial Structure Analysis

50.00%

45.00%

40.00%

35.00%
Sha reholders Fund
30.00%
Long Term Debt
25.00%
Other Current Li abilities
20.00% Long Term Provi sions

15.00% Tra de Pa yables

Current Li a bilities
10.00%

5.00%

0.00%
2011 2012 2013 2014 2015
8

In the period 2011 – 2015, Nestle Equity/ Shareholders fund keeps increasing which
denotes its strong financial stability. Nestle is able to finance its operations with both
Current & Other Current Liabilities but in the main form of Trade Payables. The
company made provisions for Long term under Long term Provisions.

B. PROFIT AND LOSS RATIOS

1. INCOME STATEMENT GROWTH:

INCOME GROWTH
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
2010 2011
2012
2013
2014
2015

net s ales
cogs
gros s income

REVENUES:

During the analysed period the amount of Total Revenues increased successively till
2014 which showed a positive trend but there was a sharp decline in 2015 which
went below 2012. The net sales increase was high in 2011 which was 20% and there
after it followed a slower increase growth of 11%, 9%, 8% & finally went to negative
17%.
9

COST OF GOODS SOLD:

The COGS growth was 16% in 2011 & till 2013 the growth was very small and again
in 2014, the growth was 15% and then declined to negative 25% in 2015 which is
mainly because of fluctuations in sales.

GROSS INCOME:

The Gross income was high initially in 2011 which was 24% and then the growth was
less and went low in 2014 which was only 3% and finally followed a similar pattern
of Revenues & COGS and declined to 10%.

Income Growth
90000

80000

70000

60000

50000

40000

30000

20000

10000

0
2010
2011
2012
2013
2014
2015

tota l expense EBITA i ncome tax net i ncome

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:

According to the overall growth these expenses also increased till 2014 with total
increase of 57% and then declined in 2015 by 15% compared to 2014.

EBITA:

Earnings Before Interest, Taxes, Depreciation and Amortization increased from 2010
till 2014 with slower growth rate but declined tremendously in 2015 which went
below 2010 from 12,789.3 million in 2010 to 11,641.8 million in 2015.
10

INCOME TAX:

The growth in the amount of income taxes reflects the growth in Nestle’s operating
income. The income taxes also followed a similar pattern of increasing till 2014 and
then declined drastically in 2015 from 2014 with 58% which was below 2010. This
means company managed to keep taxes as low as possible in recently.

NET INCOME:

There was very little growth in Net income for Nestle till 2014, which again
drastically declined in 2015 at 52% rate compared to 2014. The Net income 2010
was 8,186.6 million and in 2015 it was 5,632.7 million which shows 31% decline.

C. CASH FLOW STATEMENT RATIOS

200
179.64
169.338 164.402 Cash Flow Growth
150
115.817 109.81 Al l fi gures i n billions
100
77.534
52.93
Net Cash from Operating Activities
50 32.31
23.939
Net Cash used in Investing Activities
0
2011-4.439 2012 2013 2014 2015
-7.048Net Cash used in Financing Activities
-50
-44.094 -43.17-42.296 -49.832
-51.316 -58.012 Net change in cash and cash
equivalents
-100
-94.083

-150
-155.523
-163.528
-200

(i) Net Cash from Operating Activities

The net cash flow from operating activities saw an increase from 2011 till 2013
which was followed by a decline till 2015. The net cash from operating activities saw
an overall decline of 5.19% from 115.817 billion (2009) to 109.81 billion (2015).
11

(ii) Net Cash used in Investing Activities

The net cash used in investing activities has seen a significant decrease in
outflow of cash for investing activities. The reason could be also attributed to the
increase in interest and dividends received. Overall the cash outflow used for
investing activities decreased by 95.47%.

(iii) Net Cash used in Financing Activities

The net cash used in financing activities rose from 32.32 billion (2011) and
posted negative numbers for the next 4 years indicating cash outflow. It touched the
peaks in 2014 with -163.528 billion.

(iv) Net change in Cash and Cash Equivalents

There was a negative change in cash for 2 years 2011 and 2013 with the
figures being 4.439 billion and 42.296 respectively. The peak change was recorded in
2013 with 77.354 billion.

D. FINANCIAL STATEMENT RATIOS

1.) LIQUIDITY RATIOS

1.8
1.6
1.4
1.2
1 CURRENT RATIO
0.8 QUICK RATIO
0.6 DEBT TO EQUITY
0.4
0.2
0
2015 2014 2013 2012 2011

(i) Current Ratio:

Defined as the ratio of current assets and current liabilities, the current
ratio shows the ability of the company to meet its short-term liabilities and
obligations. Therefore, the current ratio is better if greater than 1 because
the company should have greater current assets as compared to current
liabilities. 2:1 is the standard current ratio.
12

Nestle’s current ratio has been improving over the years. In the recent
years, it has been close to 2:1. Hence, Nestle gives an indication of good
performance.

(ii) Quick Ratio:

This is the ratio of quick assets to the current liabilities. It is clear from the
graph that the quick ratio has risen at a steady rate. The ratio is close to
1:1, which is the standard quick ratio. This is a positive sign, meaning
Nestle had no problems in meeting its short-term obligations.

(iii) Debt to Equity:

This ratio indicates the financial leverage of the company. The graph
indicates that the company is using neither too much debt to finance its
operations, nor the company is not leveraging. The declining trend of ratios
(0.7 to 0.1) indicates the lesser application of debt to finance the assets.

2.) ASSET MANAGEMENT RATIOS

120

100

80

INVENTORY TURNOVER
60
ASSET TURNOVER
DEBTORS TURNOVER
40

20

0
2015 2014 2013 2012 2011

(i) Inventory Turnover Ratio:

The company’s inventory turnover has remained almost the same over the
years.
Indicating the number of times the inventory is sold or used in a year. In
the recent years, this ratio has declined a little, which is a good indicator
and shows that the company has been able to sell its goods faster.
13

(ii) Asset Turnover Ratio:

Measuring the ratio of net sales and total assets, this ratio indicates the
utilisation of the assets of the company towards its sales. The graph does
not show a very good picture of the utilisation of assets as the ratio has
been very low and constant all over.

(iii) Debtors Turnover Ratio:

It shows the efficiency of the company to use its assets. A high ratio in the
graph shows that the company’s collection of accounts receivable is
efficient and it runs on cash basis.

3.) PROFITABILITY RATIOS

80

70

60 RETURN ON EQUITY

50
RETURN ON CAPITAL
40 EMPLOYED
RETURN ON ASSETS
30

20 NET PROFIT MARGIN

10

0
2015 2014 2013 2012 2011

(i) Return on Equity:

This is the ratio of Net Income and Shareholders’ equity and shows how
many dollars of profit a company generates with each dollar of
shareholders’ equity. With growth companies, there is generally a
higher ratio. However, the graphs shows a declining trend of this ratio
which means that the company has not been earning sufficient cash
against the shareholder’s funds.
14

(ii) Return on Capital Employed:

With the ratio of EBIT and Capital employed, this ratio measures the
profitability of the company and the efficiency with which it employs its
capital, i.e. the total of shareholders’ equity and debt liabilities. A higher
ratio shows a better utilisation of capital. However, the graph shows a
falling trend. In 2015 this ratio is as low as 12 approx. Thus, Nestle is not
putting its capital to the best use and has got opportunities for
improvement.

(iii) Return on Assets:

The ratio of net income and total assets shows how efficiently the
management is utilising its assets towards the generation of earnings.
This ratio has not fluctuated too much over the 5 years, however in
2015 it declined significantly, which is not a good sign as it shows that
Nestle has not been able to earn optimum earnings on the assets
employed.

(iv) Net Profit Margin:

It shows the revenue earned, against the sales made, after deducting all
operating expenses, interest, taxes, etc. The graph shows a significant
decline in this ratio in 2015 which is a bad indicator.

4.) MARKET VALUE RATIOS

140

120

100
EPS
80
DPS
60 P/E

40 MP/BV

20

0
2015 2014 2013 2012 2011
15

(i) Earnings Per Share (EPS):

It shows the earnings made per share of the company. Nestle had a nice
record of EPS for the 4 years, however in 2015 it declined significantly
which is a bad signal for the company. It might not attract the investors.

(ii) Dividend Per Share (DPS):

The dividend paid per share of company has recorded a good show till
previous years but declined in 2015 due to fall in EPS. This is not a good
signal but can also be seen in the sense that company might be using
more part of its earnings for reinvesting in the business rather than
distributing as dividends.

(iii) Price/ Earnings Ratio:

The ratio of market price and earnings per share shows the rising trend
of P/E ratio is a good news for the company because this means the
company has a high standing in the market as compared to what it
actually values.

(iv) Market Price to Book Value Ratio:

This ratio has declined over the years which means what market
standing the company has in comparison to its book value has declined
but is all the way a good number.
16

E. OTHER IMPROTANT VALUES

 Calculation of Tax Rate:

PBT= 8136.3
TAX= 2503.6
TAX RATE= 2503.6*100/8136.3 = 30.77%

Year 2016-15 2015-14 2014-13 2013-12 2012-11

Tax Rate 30.77 33.23 33.43 31.22 30.72

 Weighted Average Cost of Capital (WACC):

WACC (2016) = E/E+D * Cost of Equity + D/E+D * Cost of Debt * (1-tax rate)

Year 2015 2014 2013 2012 2011

WACC 9.01 5.05 5.42 3.37 0.00
As of today, Nestle India Ltd's weighted average cost of capital is N/A. Nestle India
Ltd's return on capital invested is 136.10%.
17

 Market Value Added (MVA):

(Number of common shares outstanding * Current stock price) - Investors supplied

capital
Investors supplied capital is the sum of book values for Equity, Debt and Preferred
stock

This amount represents the difference between the money Nestle’s shareholders
have invested in the company since its founding – including retained earnings –
versus the cash they could get if the company was sold at that point
.
 Economic Value Added (EVA):

EVA = EBIT*(1-Tax Rate) – (Total Net Operating Capital)*(WACC)

Total Net Operating Capital = Cash & Equivalents + AR + Inventories + Net
Property+ Plant & Equipment + AP

Nestle India’s EVA= 816.92*(1-0.30) – (242.77*9.01) = -1615.51

18

This amount shows the extent to which Nestle India has increased the shareholder
value. The negative figure reflects a decline in the shareholder value.
It can be seen from the data that Nestle India’s stock price has shown a sufficient
increase in the years. There has been a line of trend of increase in the market price.
However, in 2015 end the prices declined significantly. But it has shown signs of
recovery in the first quarter of 2016. The share prices went down in 2015 because of
the fall in sales and profits of the company. The company is now improving its
performance and recovering its profits and share prices.

 Macroeconomic Variables

Many macro-economic factors, which are beyond the company’s control, may affect
Nestle’s financial conditions and operating results. The company is subject to risks
associated with laws, regulations, and industry standards. Economic conditions,
political events, tax laws, inflation, unemployment rates, etc. can adversely affect
company’s operations. Also, considering the fact that the company derives a large
portion of its revenue from abroad, Nestle’s business is subject to the risk of
international operations. The stock market as a whole may experience (as it
happened in the past) extreme price and volume fluctuations that may affect
Nestle’s market price, regardless of its operating performance.
19

III. PERCENTAGE CONTRIBUTION TO SALES IN 2015:

The above pie chart shows the share that each product type of Nestle India
contributes to the total sales of the company. Here it is evident that Milk Products
hold the largest share in the total sales followed by Prepared Dishes and cooking
aides, chocolate and confectionery, while beverages hold the smallest share in the
total sales of Nestle India. Thus, the company earns the highest volume of sale from
the Milk Products and Nutrition sector.

IV. SWOT ANALYSIS

20

V. MAJOR COMPETITORS

This graph shows that Nestle has earned the most and got the top position in terms
of the total sales in comparison to its major competitors like Pepsi, Unilever, etc.
However, in profit margin, the company lagged behind many competitors like Pepsi,
Cadbury, Unilever, etc. This shows that although the company manages to make
high sale volume, but the profit value is less because of which the profit margin is
low in comparison to other companies.

 COMPARISON WITH MAJOR COMPETITORS:

7,000.00

6,000.00

5,000.00

4,000.00

3,000.00
Market Cap
2,000.00
Total Assets
1,000.00

0.00
21

9000
8000
7000
6000
5000
4000
3000 Net Profit

2000 Sales Turnover

1000
0
-1000

These two graphs show the performance of Nestle India in comparison to the
competitors. From the above information we can interpret that it stands at the top
position in terms of the market cap and sales turnover. This means that Nestle
India’s performance is quite good as compared to its competitors. However, keeping
in mind the high sales turnover, the profit of the company is not high enough. Thus,
we can say that although the company is making high sales, but its profit making
strategy is not good due to which it earns low profits.

VI. RESULTS

A. MAJOR & MINOR FINDINGS

Based on the findings in the trend and common size analysis, Nestle India’s overall
performance has been above average over the years but in 2015 it declined to some
extent and the performance became average in this year. However, there have been
signs of improvement in the coming years.

Analysis of company’s Balance Sheet showed that Nestle India’s growth in Total
Assets, Common Equity, and Retained Earnings was above industry average.
Analysis of company’s Income Statement showed that Nestle India’s growth in Net
Sales, and Gross Income was above its competitors.

Analysis of company’s Cash Flow Statement showed that Nestle India’s Net Cash
Flow from Operating Activities was above the industry average, and that resulted in
a positive Net Change in Cash although cash has been used in both investing as well
as financing activities.
22

B. CONCLUSION

Based on the performed analysis, Nestle India is financially healthy and strong. The
company’s growth has been extraordinary during the past five years. In the recent
year the performance has degraded to some extent but the company has wide
opportunities to recover. Nestle India is able to finance its operations by current
liabilities only. It also has a strong base to meet its current liabilities. Its financial
structure is outstanding. Nestle India has quite significant amount of long-term
obligation; however its ability to meet its short-term and long-term obligation is
good, which makes the company very financially independent. Revenues and Net
Income are increasing each year.

Retained Earnings reached Rs.5632 million in 2015, which is an indicator for the
financial power of Nestle India. Due to the fact that sales are constantly increasing,
and backed by Rs.5000 million (2015) in Cash and equivalents, the company can
afford future acquisitions.

During the years, Nestle India substantially improved in its key measures of
profitability but declined in the year 2015; however it has a very high brand value
and sufficient accumulation of assets and revenues which makes it easy for the
company to recover in future.

In terms of ROA, ROE, and profit margins, Nestle India strengthened financially and
now has better ratios than its competitors and the overall computer hardware
industry. Based on the above facts it can be concluded that Nestle India has been
doing well over the years, declined in 2015, but has shown signs of improvement in
the first two quarters of 2016 and has further opportunities of growth.

C. PROJECTION

The future for Nestle India looks great. The company has significant momentum in
its favour: massive brand power, innovative product design, and a strong portfolio
that leverages individual products to boost demand of other products. We believe
that Nestle India will continue in the future without a long-term debt. I also assume
that there will be no significant change in capital expenditures and net working
capital. Due to the constant development of innovative technologies, it is highly
likely that Nestle India’s revenues will continue to grow in the future. It has been
forecasted that the revenues will grow. Following forecasts are for 2016, 2017 and
2018:
23

Annual Income Statement Data

Actuals in M INR Estimates in M INR
Fiscal
2013 2014 2015 2016 2017 2018
Period December
Sales 90 619 98 063 81 233 95 382 110 344 125 500
Operating
19 683 21 301 16 810 19 922 23 620 27 351
income(EBITDA)
Operating profit (EBIT) 16 384 17 926 13 338 16 846 20 357 23 682
Pre-Tax Profit (EBT) 16 780 17 744 8 136 17 592 21 506 25 230
Net income 11 171 11 847 5 633 11 676 14 334 16 800
P/E ratio - - - 48,8 39,9 33,7
EPS ( INR ) 116 123 58,4 122 150 177
Dividend per
48,5 63,0 48,5 75,2 93,0 113
Share ( INR )
Yield - - - 1,26% 1,56% 1,90%
Reference price ( INR ) 5965.6 5965.6 5965.6

We expect Nestle India to demonstrate higher earning margins than its competitors
in the next few years, as they are moving into small consumer electronics, as well as
remaining in the lower margin personal computer sector.
I don’t foresee a major drop in Nestle India’s stock price in the near future. Instead,
we believe that Nestle India’s stock price will continue to grow, reflecting the high
future growth and profitability expectations. We feel that Nestle India will continue
to succeed in the future, and will continue to outperform its peers.
24

VII. WORKS CITED

http://www.4-traders.com/NESTLE-INDIA-LIMITED-9058921/financials/

https://markets.ft.com/data/equities/tearsheet/forecasts?s=NESTLEIND:NSI

http://www.moneycontrol.com/financials/nestleindia/balance-sheetVI/NI

www.nestleindia.com/investors

http://finance.google.com/finance?

http://quote.morningstar.com/Quote/Quote.aspx?pgid=hetopquote&ticker

http://stocks.us.reuters.com/stocks/overview.asp?symbol

http://www.smartmoney.com/eqsnaps/?story=snapshot&symbol

http://tobsefin1.swlearning.com

http://finance.yahoo.com/q?s