Neutral Nestlé India; target of Rs 2400: Motilal Oswal

Motilal Oswal's research report on Nestlé India

Nestle India (Nestle) reported weak revenue growth of 1% YoY (est. 6%) in 2QFY25. Last eight-quarter average revenue growth was 10%. Domestic sales grew 1% YoY, impacted by muted demand and higher commodity prices. Beverage, toddlers’ range and milkmaid posted high double-digit growth, while KitKat saw high single-digit growth. Thereby, prepared dishes, parts of the milk products and chocolates would have been the key drag in 2Q. Export revenue increased by 3% YoY. GM was flat YoY at 56.6% (est. 57.0%). GP was up only by 2% YoY. Input prices are seeing inflation, with coffee and cocoa prices remaining elevated. Cereals, grains (MSP-led) and edible oil are also seeing inflationary trends. Prices are stable for milk and packaging. Due to a 6% increase in operating costs, EBITDA margin contracted by 150bp YoY. EBITDA declined 5% YoY to INR11.9b (est. INR13.4b). Lower other income (down 79% YoY) and higher depreciation (9% YoY up) further impacted profitability.

Outlook

The stock trades at an expensive valuation of 70x/62x FY25E/FY26E EPS. We reiterate our Neutral rating with a TP of INR2,400 (based on 60x P/E Sep’26E).