Reduce Nestle India; target of Rs 20,000 HDFC Securities

HDFC Securities' research report on Nestle India

Nestle reported an in-line Q3CY23 print as revenue grew by 9% while margins (both GM/EBITDAM) expanded. Domestic revenue growth of 10% YoY (HSIE 11%) was broad-based across categories and channels. Prudent pricing was supported by mix and volume (around low-single-digit volume growth). With a stable RM basket and higher net realization, GM expanded by 380bps YoY to 56.5% (57% two years back). While uneven rain and deficit rain can impact prices of maize, sugar, oilseed, spices and green coffee; a healthy winter flush to keep milk prices stable. EBITDA margin expanded by 250bps YoY to 24.8% on better cost control. EBITDA grew by 22% YoY (HSIE 20%). Nestle has announced a sub-division of the face value of shares to INR 1/share. Nestle continues to focus on distribution strengthening, category expansion and capacity building. We remain positive on OOH products and sustain growth for in-home products. We maintain our EPS estimates.

Outlook

We value Nestle at 52x P/E on Sep-25E EPS to derive a TP of INR 20,000. With a rich valuation, the absolute upside is limited in the medium term. Maintain REDUCE.