Neutral Nestle India; target of Rs 21,765: YES Securities

YES Securities recommended Neutral rating on Nestle India with a target price of Rs 21,765 in its research report dated April 25, 2023.

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April 26, 2023 / 14:16 IST

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YES Securities' research report on Nestle India

Nestle India’s (NEST) 1QCY23 topline growth surprised us positively delivering highest quarterly growth in last 10 years. Momentum in domestic revenue growth improved in 1QCY23 versus 4QCY22, with growth of 21.2% YoY (5‐year CAGR of ~12.5%). This strong performance was broad based, and we believe, was aided by distribution expansion (including Project RURBAN) and continued acceleration in modern channels of distribution, well supported by media campaigns and consumer activations. After showing signs of improvement in 4QCY22, gross margin took a slight hit in 1QCY23 sequentially (down 110bps QoQ and down 150bps YoY to 53.8%) due to higher commodity prices particularly milk & its derivatives, wheat flour, edible oil, partly offset by better realisations. Important to note that there are early signs of softening of commodities such as edible oils, wheat & packaging materials. However, cost of fresh milk, fuels, and green coffee are expected to remain firm. Economies of scale, implementation of procurement strategies and accelerated SHARK savings programme are playing a key role in supporting operating performance in near term.

Outlook

As there we no one‐offs in this quarter’s performance, we expect no major change in momentum in coming quarters and thus revise our CY23E/CY24E EPS upwards by 7.4%/9%. We maintain our NEUTRAL rating with a revised target price of Rs21,765 (Rs20,160 earlier), as valuations little room for error on execution.

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