Emkay Global Financial has given Hold recommendation for Nestle India with a target price of Rs. 16,200 in its research report issued on Feb 16, 2021

Emkay Global Financial’s report on Nestle India

Q4CY20 earnings missed expectations by ~15% on account of lower margins from higher employee and marketing costs. Domestic sales growth at 10% was in line. Exports declined 8%, reducing overall growth to 9%. Domestic growth was steady but unlike some peers Nestle did not see an acceleration from Q3 despite the economy opening up further. Some moderation in in-home snacking (highlighted by Britannia) and slow recovery in the OOH channel have likely affected Q4. Operating margin miss despite 230bps GM expansion in Q4 is likely driven by one-off increase in staff and marketing costs. Input prices remain benign and moderation in opex should drive gains ahead. We estimate 200bps margins expansion over CY21-23.

Outlook

We retain CY21-22 estimates and introduce CY23 estimates. Growth has been steady but slower than peers’ recently. Margin miss and rich valuations (56x CY22) should limit near-term upsides. Retain Hold with a revised TP of Rs16,200, rolling forward to Mar’23E EPS.

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