Hold Nestle India; target of Rs 1359: Prabhudas Lilladher

Prabhudas Lilladher's research report on Nestle India

We are increasing FY27/FY28 estimates by 5.2/6.9% given 1) better than expected volume growth across segments, excluding Nutrition 2) expected increase in volume growth due to benefits of lower GST in majority of NEST products 3) peaked out commodity prices (Milk, coffee, cocoa etc. 4) lower increase in incremental depreciation and interest as capex intensity has likely peaked out. NESTLE posted a strong quarter with 10.6% sales growth and flattish EBIDTA as margins declined 97bps given impact of elevated commodity prices (coffee, cocoa, milk and palmoil), higher operational costs (expansion in capacity. We expect high single digit to low double- digit volume growth in coming few quarters on the lines of GST transition gains in FY18 led by Maggi, Nescafe (powder + RTD) and Chocolates (Wafers and milk chocolates). NEST faces structural increase in competition in segments like Instant Noodles and Nutrition, which remains a key drag.

Outlook

We estimate EPS CAGR of 14.7% over FY26-28. The stock trades at 59xFY28 EPS. We assign DCF based target price of Rs1359 (Rs1222 earlier). Downside seems capped given expected acceleration in volumes.