Nestle India to announce Q3 earnings today; here's what brokerages are expecting

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FMCG company, Nestle India, on October 23 is likely to report moderate fall in profit due to higher tax expenses, but continued demand for ready-to-eat products could drive revenue growth in the range of 7-12 percent YoY.

The stock remained under pressure during the September quarter, falling 7 percent, but has gained 3 percent year-to-date 2020. The company follows January-December as its financial year.

"We expect Nestle India to report a revenue growth of 11.7 percent YoY / 9.9 percent QoQ in Q3CY20 on the back of increase in demand for ready-to-eat product such as Maggi, Dairy products, KitKat and Coffee as well as volume led growth from online delivery channels," said KR Choksey.

Kotak Institutional Equities said it estimated 10.5 percent growth in net domestic revenues with broad-base across segments, particularly prepared dishes. "For exports, we build a 5 percent growth (on a favourable base)."

The operating performance is expected to be strong due to higher revenue growth and operational efficiencies.

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"We model 144bps YoY expansion in gross margin (down 216bps in Q3CY19 and down 193bps in Q2CY20) on account of favourable base and product mix. We model EBITDA margin expansion of 172bps YoY. EBITDA to grow by 16 percent YoY (up 2 percent in Q3CY19 and up 7 percent in Q2CY20)," said HDFC Securities.

KR Choksey foresees an increase in EBITDA margin due to operational efficiencies undertaken by the company and reduction in variable expenses particularly ad spends offset by rise in milk prices.

Key factors to watch out for would be the commentary on recovery in trade channels and rural demand, new product pipeline, demand trends in packaged foods, guidance on price and volume, capacity utilization levels, and cost control initiatives.