Hold Nestle India; target of Rs 10,900: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Nestle India

Nestle's growth story is based on 4 growth pillars of 1) harnessing its cluster based strategy to go deeper and increase sales in interiors 2) increasing innovation and renovation 3) leveraging e-commerce and 4) exploiting the OOH opportunity. Nestle has 70% success rate in new launches in past 3 years (3.7% of sales) and posted double digit volume growth in tough environment, however sustaining the same seems a daunting task as 1) Maggi, although reached all-time high sales, its market share at 59.6% is far lower than 75%+ in pre-crisis level and value added variants have limited success (hot heads withdrawn) 2) margin centric strategy in nutrition portfolio with no LUP's 3) rising competition in instant coffee market in India and lack of scale in Milo and Nescafe RTD 4) peaked out margins at both gross ad EBIDTA level. Kitkat and Munch are leading the resurgence in chocolates, Nestle seems unlikely to enter MFD segment with MILO in a major way.

Outlook

We estimate 9.6% PAT CAGR over CY19-20 mainly led by 11.6% sales growth and flattish EBITDA margins. We value the stock at 46xCY21 EPS and arrive at target price of Rs10900. We assign Hold rating on stock (Under Review earlier), expect back ended returns post sharp uptick in stock price.

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