Nestle optimistic on India growth story

Nandkishore maintains that Nestle’s core focus continues to be organic
growth with demographics, reach and innovation. Even with the current
economic slowdown, Nestle will remain fundamentally optimistic but
will not get too far ahead of market demand. This would provide enough
flexibility to grow.

Below is the edited transcript of the interview. Also watch the accompamying videos.

Q: You have professionally been outside of India for the last 15 years now. You are looking at all of Nestle’s emerging market operations at this point in time. There is a lot of pessimism with regards to the India growth story – a story that was potentially a double digit growth story is now perhaps a story that will at best do about 7-7.5%. Do you share the kind of pessimism that seems to be palpable at this point in time?

A: On a long term perspective, you have to be optimistic and you do
see sustained economic growth happening over a long period of time.
Given the long term optimism, you will have speed bumps and there will
be cases where businesses will go up and down and I personally lived
through one such economic crisis in the ASEAN region.

I was in Indonesia during the economic crisis of 1998 and it was a big
shock at that point of time. But just 10 years later, our business has
grown almost three times the size it was in 1998. So, the long term trend is
fundamentally optimistic. Coming then to India with the current
background, 7% or 6% looks slower than 8% but if you look at it from a
historical context of the Indian GDP growth rate or even from a global
context today, 6% is not a bad economic growth rate.

Q: If India is compared to Europe or the US, clearly, 6% is not a bad number.

A: It still remains a very interesting destination to invest and look
for growth. From a Nestle point of view, we see the emerging markets
really as an engine of growth and within this bigger engine there are
many sub engines, there is China and India, but there is also the
ASEAN region, the Middle Eastern region and Africa. So, there are many
engines which are driving growth and fundamentally this is all fueled
by people’s aspirations, by freedom of information and by access to
goods and services.

Q: You talked about how this region or this market is about 27%of
Nestle’s global business. When do you see that perhaps inching closer to 50%?

A: Difficult to say, your guess is as good as mine.

Q: I am sure you have some sense of the kind of growth that each of these regions is enjoying at this point in time. Isn’t it an
unrealistic number?

A: No, for the last few years this whole region has been growing at
double digit every year which is almost twice the growth rate of the
group globally. So, this is obviously a landmark milestone that we
would very much like to reach at some point of time. I would hesitate
to make a guess as to when that will be.

Q: Analysts who study Nestle seem to suggest that while between 2008 and 2010, the company recorded a CAGR in excess of about 25%, we are now will see a deceleration down to the 19%-20% level atleast till CY13 in India. Is that a fair assumption?

A: I would not like to comment on specifics.

Q: I know you are in silent period, but is that a fair expectation
given the kind of headwinds and given the kind of challenges that you see in the Indian market in the short term. I know you are bullish on the long term but in the short term, would this be a fair expectation?

A: I would not like to get tied down to any specific numbers. It’s the
responsibility of the local market and management.

Q: But would it be fair to say that the period from now to 2013 would obviously not be as strong or as robust as the period between 2008 and 2010?

A: From my point of view India has been a growth story and will
continue to be a growth story and I am not going to let up the
pressure.

Q: Inflation clearly has been the big challenge. We are now beginning to see inflation easing which could perhaps lead to the interest rate cycle easing as well which should get back the consumption story. What are the other challenges and headwinds that your local management is telling you about here in India?

A: The phrase that has been used with me is one of 'pragmatic
bullishness' which is a very good phrase. If you look back over the
last three years, the period wherein we were growing 25% a year in our
business in India, we actually had a very tight capacity situation
across most of our product categories, whether it was noodles, or
chocolates, we were really constrained in our growth by capacity.
Nestle then took a decision to invest in India over a two-year time
period, 2010-11 almost USD 500 million in building capacity.
That capacity has now become available.

So, because the capacity is available you would expect that a lot of the pent-up demand that could not be fulfilled can now be fulfilled. So that's a strong argument for the continuation of the growth story. At the same time the argument against is to say - what if there is an economic slowdown because then you will have idle capacity. At this point in time, we are fundamentally optimistic but the pragmatism says yes, be optimistic, yes invest, yes be bullish, but don't get too far ahead of market demand. So you just have enough flexibility to grow.