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Nestle Q4 net profit up 10%: Macquarie, CLSA, Credit Suisse retain outperform rating

Most global brokerage firms remained positive on Nestle India but some slashed their EPS estimates as well as target price to build in higher marketing spends in the fourth coming quarters.

February 15, 2019 / 09:39 AM IST
Nestle India | The share price performance in FY20: 48%, FY19: 34%, FY18: 23%. PAT Margins for FY20, FY19, and FY18 were 12%, 14%, and 16% respectively.

Nestle India | The share price performance in FY20: 48%, FY19: 34%, FY18: 23%. PAT Margins for FY20, FY19, and FY18 were 12%, 14%, and 16% respectively.

 
 
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Global brokerage firms such as CLSA, Credit Suisse maintained outperform rating on Nestle India after the FMCG major reported a 9.6 percent increase in net profit to Rs 341.76 crore for the quarter ended December 31, 2018.

The company's total income in the fourth quarter stood at Rs 2,972.5 crore as against Rs 2,652.55 crore in the year-ago period. Total sales increased 11.2 percent while domestic sales grew 12 percent in the December quarter supported by volumes and was broad-based.

Most global brokerage firms remained positive on Nestle India but some slashed their EPS estimates and target price to build in higher marketing spends in the coming quarters.

Here’s how global brokerage firms reacted to Nestle December quarter results:

Macquarie: Outperform| Target: Rs 12,994

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Macquarie maintained its outperform rating on Nestle India post December quarter results with a target price of Rs 12,994. Q4 was below estimates on account of lower margins.

The domestic revenue growth remains strong at 12 percent on a year-on-year basis. Higher A&P spend in Q4 reflects management confidence in the demand environment. The FMCG player is best placed to play the packaged foods space.

Credit Suisse: Outperform| Target: Rs 12300

Credit Suisse marinated its outperform rating on Nestle India post December quarter results. A sharp margin contraction was seen due to a spike in marketing spends. The global investment bank slashed estimates by 2-3% as we build in higher marketing spends.

The FMCG major entered 3-4 new categories in CY18 which are taking in high marketing spends.

Morgan Stanley: Underweight| Target Rs 8400

Morgan Stanley maintained its underweight rating on Nestle India post December quarter results with a target price of Rs 8,400.

The company reported a weak Q4 which clouds 2019 earnings visibility. Increase in demand-generating activities a step in the right direction. Trading at 52x 2019e P/E, the risk-reward is skewed to the downside, said the note.

CLSA: Outperform| Cut target to Rs 11500 from Rs 11950 earlier

CLSA maintained its outperform rating on Nestle India post December quarter results but slashed its target price to Rs 11,500 from Rs 11,950 earlier.

A step up in A&P spend should be a good strategy. The margin decline slipped to a six-quarter low of 20.7 percent was a huge miss. The global investment bank trimmed EPS estimate by 4-5 percent.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Feb 15, 2019 09:39 am

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