Analysts still cautious on Nestle despite MD's new strategy

Moneycontrol BureauAnalysts do not seem to be impressed by Nestle India despite MD Suresh Narayanan's impressive strategy after re-introducing Maggi noodles to market. CLSA retains a sell rating on the FMCG major and believes recovery in business will be gradual and remain around 20 percent below consensus over CY15-17. While long-term investors may be inclined to consider the strategy change, it still has a negative view on the stock.

“In the analysts meet, management stressed its focus on double-digit growth with volume an important driver along with the intent to expand its portfolio in a gradual manner. While long-term investors may find the change as a big positive, we highlight this strategy will take time to play-out and there remain risks to consensus earnings in the medium term,” CLSA says in a note.

In an investor meet, Nestle said its strategy would entail fixing issues with current brands, renovating and extending existing brands into adjacent categories. The company would then explore newer categories depending on the opportunity, margin, differentiation. Volume growth is an important priority for management now.

Jefferies has also slashed revenue and earnings forecast by 5-10 percent with a target at Rs 7020 per share. It says prolonged demand weakness and execution are key risks for Nestle India. The brokerage is worried that growth for Nestle looks tepid for 3-4 years led by broader market weakness. It feels that the company is poised for strong growth driven by a renewed innovation drive while fixing laggard & renovating strong brands should be prioritised.The company claims to sell 3.3 crore packs of its instant noodles Maggi in 350 towns across India since the re-launch of the product in November, five months after it was banned by central food safety regulator FSSAI. In an analyst presentation, the company said it is selling Maggi at 1.2 lakh outlets through 724 distributors. However, seven states (provinces) are yet to allow the sale of Maggi.