Goldman Sachs has maintained sell rating on Nestle India with a target of Rs 4608 as the company has reported June quarter numbers which were below the estimates.
The company has reported 1QCY17 sales at Rs 2480 crore and EBITDA at Rs 440 crore, which were below the research firm expectations due to de-stocking ahead of GST implementation.
The company's exports were down 12 percent YoY due to lower sales of Milk & Nutrition products in Bangladesh and the Middle East. The gross margins also compressed by 240bps YoY against the estimate of 140bps due to milk price inflation and limited pricing to offset the same.
While the quarter was partly affected by GST, we believe the margin weakness also reflects lower pricing power in Nestle’s core categories like milk nutrition in the wake of increasing competition, it added.
The research firm does not expect company's EBITDA margins to reach historic levels of 22 percent over the next few years. Also its lowers CY17E-19E EPS by 1-2 percent to reflect lower sales growth and gross margin.
The key risks include the higher volumes led by faster-than-expected growth in rural markets and slowdown in shift towards naturals.
The research firm has reduced its 12-month target to Rs 4608 from Rs 4731.
At 14:06 hrs Nestle India was quoting at Rs 6,775.05, down Rs 12.25, or 0.18 percent on the BSE.
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