Neutral Nestlé India; target of Rs 2500: Motilal Oswal

Motilal Oswal's research report on Nestlé India

Nestle India (Nestle) reported weak 3.3% YoY revenue growth (est. 8.6%) in 1QFY25. Last eight-quarter average revenue growth was 14%. Domestic sales grew 4.2% YoY, supported by volume growth and a favorable product mix. Export sales contracted by 7.2% YoY to INR1.8b. GM expanded 280bp YoY to INR57.6% (est. 55.5%). GP was up by 9% YoY. Input prices are seeing inflation, with coffee and cocoa prices hitting all-time highs. Cereals and grains (MSP led) are also seeing inflationary trends. Prices are stable for milk, edible oils and packaging. Nestle has seen a strong GM recovery (up 300bp) in the last 12 months; we model a limited expansion in FY25. With 11% growth in operating costs, EBITDA margin inched up 40bp. EBITDA grew 5% YoY to INR11.2b (est. INR12.1b).

Outlook

We believe the company will be able to sustain its EBITDA margin at ~25% for FY25/FY26.The stock trades at expensive valuations of 67x/61x FY25E/FY26E EPS. We reiterate our Neutral rating with a TP of INR2,500 (based on 60x P/E Jun’26E).