Hold Nestle; target of Rs 2350: ICICI Securities

ICICI Securities research report on Nestle

Nestle’s Q2FY25 revenue growth was disappointing; it further de-accelerated to 1% YoY (vs 4% in Q1FY25) due to subdued consumer demand (urban has been witnessing decelerating demand trends over last few quarters). Gross margin was largely flat (despite significant inflation in key inputs) while EBITDA margin declined ~155bps YoY to 22.4% due to operating deleverage. Higher prices of key raw materials (cocoa, coffee etc.), margins are likely to remain under pressure. That said, Nestle appears to have a market share gain opportunity given the relative immunity from cocoa inflation as its key brands KitKat and Munch have lower cocoa content vs competition (~5% vs ~20% in Cadbury).

Outlook

Though we considered upgrading Nestle post stock underperformance of ~20% over last 12 months, we are unable to find any fundamental reasons, as of now. Maintain HOLD with revised TP of INR 2,350.

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