Accumulate Nestle India; target of Rs 2689 Prabhudas Lilladher

Prabhudas Lilladher's research report on Nestle India

NEST displayed a weak quarter of low-single digit topline amid muted consumption demand, continued food inflation & volatile commodity prices. Near term outlook remains tepid given 1) volatility in consumer demand due to rising food inflation 2) higher prices of inputs like coffee, cocoa and edible oils, which might require price hikes 3) rising competition in key category of Instant Noodles (60% of tonnage volumes) and Dairy. Long term drivers remain intact, led by 1) sustained innovation pipeline 2) focus on premiumisation 3) huge scope of growth in coffee, RTD & Chocolates 4) higher growth in channels like E-Com (8.3% of sales) and MT and 5) likely benefits from Rs50bn capex plan over next 3 years (1H25 capex at~Rs11bn).

Outlook

We cut our FY25/FY26/FY27 estimates by 6.0%/6.3%/6.7% given 1) likely margin headwinds as input costs of cereals, edible oil, coffee & cocoa are moving up and 2) delayed volume recovery due to likely price hikes in coffee and chocolates and competition in Instant Noodles and Dairy. We cut our DCF based target price to Rs. 2689 (Rs.2862 earlier). Although near term outlook remains uncertain, accumulate at lower levels for LT gains.

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