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Analysts bearish on Nestle post Q3, see no immediate driver

Barclays remains underweight on it with a revised price target of Rs 4739, implying potential downside of 20 percent as it expects fundamentals to remain weak. According to the brokerage, Nestle needs a strong pick-up in urban consumption spend to revive growth in its largely urban-focused product portfolio
Oct 29, 2014 / 11:47 AM IST
 
 
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Moneycontrol Bureau


Brokerages are bearish on Nestle India as third quarter (July-September) earnings were tepid. Shares of the FMCG major, however, was up 2 percent intraday on Wednesday.


Credit Suisse maintains underperform rating and reduced earnings by 4 percent on subdued volume growth. "The stock trades at 42 times one-year forward earnings which is at its peak valuation in the last 15 years. There has been no change in company strategy with a continued focus on portfolio rationalisation and margins. We do not see recent new launches such as Maggi Oats as material innovations which can move the needle," it said in a note.


The FMCG major's consolidated net profit was up 9.22 percent at Rs 311.29 crore in third quarter, as subdued demand continued to impact the sector. Its sales rose to Rs 2,557.8 crore, up 8.92 percent in Q3.  It said high input cost especially higher cost of milk pressurised performance in September quarter.


Goldman Sachs also maintains sell rating with a reduced target of Rs 4443 from Rs 4460 per share.


Barclays remains underweight on it with a revised price target of Rs 4739, implying potential downside of 20 percent as it expects fundamentals to remain weak. Among the FMCG stocks, Barclays prefers Britannia and Dabur. According to the brokerage, Nestle needs a strong pick-up in urban consumption spend to revive growth in its largely urban-focused product portfolio.


"We do not see any material catalysts near-term, and hence multiples may not be supported at current levels. There is a material disconnect between expanded multiples and weak fundamentals," it said.


However, Deutsche Bank is positive on the stock and recommends buying it with a target of Rs 6600 as it believes Nestle may remain stable in near term. It expects Nestle to benefit from relaunches (milk products and Maggi Oats), improvement in distribution and urban consumption recovery.


At 10:48 hrs Nestle India was quoting at Rs 6,008.85, up Rs 39.05, or 0.65 percent on the BSE.

Posted by Nasrin Sultana

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