Accumulate Nestle India; target of Rs 19,088 KR Choksey

KR Choksey's research report on Nestle India

For Q3CY20, Nestle India reported revenue growth of 10.1% YoY (+16.1% QoQ) to INR 35,417 mn Domestic Sales increased by 10.2% YoY largely driven by volume & mix. Along with this, Export Sales increased by 9.4%. EBITDA margin improved by 158bps YoY to 24.9% (+44bps QoQ) mainly due effective inventory management and other expenses. Net Profit declined marginally by 1.4% YoY / (up by 20.7%) to INR 5,871 mn with NPM of 16.6% (down 194bps YoY / up 62bps QoQ); largely attributed to higher tax expenses. However, the tax expenses of Q3CY19 is not comparable due to lower tax rate pertaining to that period. The company declared an interim dividend of INR 135 per share for CY20

Outlook

We continue to apply a forward P/E multiple of 71x (same as earlier) on CY21E EPS of INR 269 to arrive at a target price of INR 19,088 per share; an upside potential of 10.8%. We believe the valuation looks stretched from now and offers limited upside; hence, we revised our rating to “ACCUMULATE” (previous rating “BUY”) on the shares of Nestle India.