According to a research report by Hongkong Shanghai Banking Corporation (HSBC), Nestle India is expected to overtake other FMCG majors like Hindustan Lever (HLL), ITC, Britannia, Colgate-Palmolive and Cadbury by 2003-04 in creating value for shareholders.
“For all the players, we are forecasting an increase in value creation, the impact being highest in Nestle,” the ’HSBC’s India 50’ study has said.
The report said that the earnings per share growth was slowing down for all food companies due to rising commodity prices and weak industrial growth but predicted that Return on Invested Capital (ROIC) would increase for all the players in future.
The report said, Nestle is expected to benefit most from the improvement in the sectoral growth. Nestle is expected to have a value spread of 8.8 per cent by fiscal 2004, much higher than other players like Britannia (7.2 per cent), Colgate Palmolive (5.1 per cent), ITC (3.6 per cent) and HLL (3.4 per cent).
The entry of Nestle into new areas like dairy and mineral water held high growth potential, HSBC said, but pointed out that such low-margin businesses could have long gestation for break-even.
Nestle is expected to register a 14.3 per cent rise in net profit of Rs 246.6 crores in fiscal 2003 while ITC’s net is likely to stand higher by 13.3 per cent at Rs 1,477 crores over the next three years, HSBC said. The report revealed two clear strategies of broadening of offering and entry into daily eating habits by FMCG firms.
Pointing out that there was enormous scope for consolidation, the study said acquisitions in the food sector was plenty but low-ticket, excluding HLL-Brooke Bond. It, however said that since a large number of local players were present in Indian foods like pickles, salty snacks and sweets which have local appeal, larger opportunities exist in branded water/ fruit juices and biscuits, which could be exploited by existing players.