Buy Nestle India, target Rs 1699: Angel Broking

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Buy Nestle India, target Rs 1699: Angel Broking

Angel Broking has maintained buy rating on Nestle India with target price of Rs 1699, implying upside potential of 18%. We have used the DCF methodology to value the company.

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Angel Broking has maintained buy rating on Nestle India with target price of Rs 1699, implying upside potential of 18% in its December 07, 2007. "We believe Nestle offers the best opportunity to play out the growing Food Processing theme in India. At the CMP of Rs1,442, the stock trades at 22.1x CY2009E Earnings and 13.8x EV/EBITDA. Nestle justifies its premium valuations in comparison to its peers on account of its global parent support, strong brand recall, excellent Return Ratios and superior EBITDA Margins. On a PEG valuation basis, the stock trades at 1x CY2007-09E Earnings growth, which we believe is extremely reasonable given the long-term growth opportunity the company offers. We have used the DCF methodology to value the company. As the company is debt free, we have used free cash flow to equity (FCFE) method to derive the fair value. Assuming a cost of equity of 11.5% and a terminal growth rate of 5%, our Target Price based on CY2009 estimates works out to Rs1,699 at which the stock would trade at a P/E of 26.1x and EV/EBITDA of 16.3x in line with its average P/E band of 25-28x. We Initiate Coverage on the stock, with a Buy recommendation potential upside of almost 18% from current levels," according to Angel Broking report.