Reduce Nestle India; target of Rs 18,500: HDFC Securities

HDFC Securities recommended reduce rating on Nestle India with a target price of Rs 18,500 in its research report dated April 25, 2023.

Broker Research

April 26, 2023 / 12:20 IST

Reduce

HDFC Securities' research report on Nestle India

Nestle’s 1QCY23 earnings surprised positively, led by strong revenue performance. However, the margin saw a marginal miss. Domestic revenue grew 21% YoY while exports grew by 25%. The growth was led by a healthy balance of pricing, volume and mix (around mid-single-digit volume growth). Rurban growth was complemented by strong momentum in metro and megacities. GM contracted by 150bps YoY to 53.8% (59% two years back). Although wheat, edible oil and packaging material saw some softening, the cost of fresh milk, fuel, and green coffee remained firm. Cost control protected the EBITDA margin, which was down 20bps YoY to 23.3%. EBITDA grew by 19.8% YoY (HSIE 14%). 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.

Outlook

We maintain our EPS estimates. We value Nestle at 52x P/E on Mar-25E EPS to derive a TP of INR 18,500. With a rich valuation, the absolute upside is limited in the medium term. Maintain REDUCE.

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