Hold Nestle India; target of Rs 15,800: Emkay Global Financial

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Emkay Global Financial's report on Nestle India

Nestle saw a stronger-than-expected recovery with double-digit sales growth. Domestic business grew 10%, beating estimates by 3%, with strong performance from noodles, coffee and chocolates, benefitting from in-home consumption. EBITDA was largely in line with growth of 16%. PAT was flat due to lower ETR in the base. Gross margins expanded 180bps qoq, led by low milk prices, which are likely to sustain in the near term. Softer commodity prices and control on other overheads are likely to help maintain a positive margin outlook. Growth outlook has improved (vs. Q1), with a ramp-up in the supply chain and continued benefits from high in-home consumption. Growth in the core portfolio remains strong. Pickup in innovation pace, which appears to have slowed down post Covid, would be positive.

Outlook

With Improved growth outlook and valuations reverting to reasonable levels (down ~12% from peak), we see limited downsides and hence, upgrade the stock to Hold from Sell, with a revised TP of Rs15,800 (from Rs15,600), based on 50x CY22E EPS.

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