Accumulate Nestle India; target of Rs 2559: Prabhudas Lilladher

Prabhudas Lilladher's research report on Nestle India

NESTLE saw a decent quarter with margin beat as calibrated price hikes neutralized the impact of high inflation in coffee and cocoa. Although demand remains weak, there seems QoQ improvement across segments. Although we expect gradual pick up in volume growth, high input cost inflation in coffee & cocoa and rising competition Instant Noodles (60% of tonnage volumes) are key near- term challenges. Long term drivers remain intact, led by 1) sustained innovation pipeline 2) focus on premiumization 3) huge scope of growth in coffee, RTD & Chocolates 4) higher growth in channels like E-Com (8.5% of sales) and MT and 5) likely benefits from capex done in past couple of years.

Outlook

We cut FY26/FY27 estimates by 2.7/2.5% given 1) likely margin headwinds from high prices of key inputs like cereals, edible oil, coffee & cocoa and 2) rising competition in Instant Noodles. We rollover and increase DCF based target price to Rs. 2559 (Rs.2546 earlier). We expect back ended returns given valuations of 65xFY27 EPS. Retain Accumulate.