Motilal Oswal has given Neutral recommendation for Nestlé India with a target price of Rs. 18450 in its research report issued on Apr 21, 2022
Motilal Oswal’s research report on Nestlé India
Nestlé India (NEST)’s 1QCY22 numbers were largely in line with our estimates, with an overall sales growth of 10.2% YoY v/s our estimate of 12%. Domestic sales rose 10.2% YoY while exports declined marginally by 1% YoY. Gross margin pressure continued; it contracted 310bp YoY and 160bp QoQ to 55.4% (at 19-quarter low) v/s our expectation of 56.5%. According to the management, material cost pressure is here to stay for the time being and hence we believe it may adversely affect operating margin going ahead. While we like the longer term investment case for NEST driven by its high topline growth potential, expensive valuations and commodity cost concerns warrant a Neutral rating on the stock, in our opinion.
NEST’s valuation at ~61x CY23E P/E is expensive and does not offer any significant upside from a one-year perspective. We value the company at 60x Mar’24 EPS to arrive at our TP of INR18,450. With 1% potential upside, we maintain our Neutral rating on the stock.