Accumulate Nestle India; target of Rs 2606: Prabhudas Lilladher

Prabhudas Lilladher's research report on Nestle India

We attended the Nestle India analyst meet where the company has given cautiously optimistic outlook on growth, notwithstanding near-term demand pressures led by high inflation and urban distress. NEST will focus on volume led growth with range margin margins as current levels seem optimal post 600bps expansion since 2016. NEST continues to innovate with rising share of NPD (6-6.5% of sales) and is looking at major gains in Maggi, Chocolates, Beverages and OOH consumption. We expect growth rates to accelerate given capacity expansion (Rs55bn in four years) and benefit from JV with Dr Reddy’s in the medical nutrition business. We cut our FY25/FY26/FY27 estimates by 2.8%/1.9%/2% given 1) tepid demand in urban India (75%+ of sales) 2) margin headwinds given steep inflation in input costs of cereals, coffee & cocoa and 2) low growth potential in Infant nutrition (~30% of sales).

Outlook

We cut our DCF based target price to Rs. 2606 (Rs.2689 earlier) valuing it at 68x Mar’27 EPS. We would keenly watch out for the NEST’s strategy under the new management in coming few quarters. Retain Accumulate.