Hold Nestle India; target of Rs 10996: Prabhudas Lilladher

Prabhudas Lilladher's research report on Nestle India

NEST's proactive strategy started post Maggi fiasco has paid off well with higher growth and 3% sales from new launches (25 successes) in past 2 years. Nestle is taking initiatives to accelerate growth which include 1) Cluster based strategy to go deeper and increase sales in interiors 2) 39 New launches in past 2 years 3) entry into breakfast cereals with Nesplus 4) Re-launch of Resource high protein supplements 5) Plan to recalibrate chocolates business and 6) extending Maggi to new snacking products. However, we did not get enough confidence on Nestle sustaining double digit volume growth in Maggi (post rebuilt) and double digit sales growth in Nutrition portfolio (~73% of sales). We are concerned that Maggi now has 10-12% lower share than it had prior to fiasco and that Nestle has lost share in most product categories (except Coffee) in 1H18 on YoY basis.

Outlook

We value the stock at 46xCY20 EPS and arrive at target price of Rs10996. We assign Hold rating on stock (Under Review earlier), expect back ended returns post sharp uptick in stock price recently.