Motilal Oswal has given Neutral recommendation for Nestle India with a target price of Rs. 18,700 in its research report issued on Mar 21, 2022

Motilal Oswal’s research report on Nestle India

NEST’s CY21 annual report highlights its underlying strengths and one of the strongest revenue growth opportunities in the Indian Consumer universe. The key takeaways are as follows: Overall volume growth of ~11% in CY21 was healthy, with strong growth in Beverages (up ~18% YoY) and Prepared Dishes and Cooking Aids (Maggi, up ~16% YoY). Since Prepared Dishes constitute ~60% of total volumes v/s ~31% of sales, overall volume growth is very healthy in years when this segment performs very well. Volumes in Milk and Nutrition (M&N, 43%/25% of total sales/volumes) fell 2.7% YoY in CY21, clocking another disappointing year for NEST’s largest segment by sales. This continues the trend of flattish volumes in this segment in three out of the past four years. While volume growth has been robust across the other three categories since Mr. Suresh Narayanan took charge, M&N volume in CY21 was marginally lower than CY14 levels. Sales growth in the M&N segment in CY21 was subdued ~1.9%, taking some sheen off the excellent performance in the other three segments, all of which clocked an impressive sales growth (between 15% and 21% YoY) in CY21. Ad spends (not shared in interim results) were flat YoY. As a percentage of sales, it was at the second lowest level in the last seven years. Given the higher investments in ad spends in the past years, which contributed to double-digit revenue growth in recent years, the decline in ad spends-to-sales ratio is disappointing. With rising commodity costs (which the management believes is here to stay), the ad spends-to-sales ratio needs to be monitored over the next couple of years. Amid the COVID-19 pandemic, the pace of launches, while lower than preceding years due to the management’s focus on the core business, was still healthy compared to its peers. Since CY16, NEST has launched 90 products. FATR was impacted by ongoing capex and increase in ROU assets, but net working capital days remained under control. Gross FATR (including ROU) fell to 2.9x in CY21 from 3.2x in CY19, while gross FATR (excluding ROU) fell to 3.2x from 3.5x. NWC days was flat to marginally negative in the last four years from eight-to-fifteen days earlier. Valuations are expensive at 59.5x CY23E EPS, preventing us from turning constructive on the stock. We maintain our Neutral rating.


Valuations at 59.5x CY23E P/E are, however, expensive and do not offer any significant upside from a one-year perspective. We value the company at 60x Mar’24E EPS to arrive at our TP of INR18,700. We maintain our Neutral stance.

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At 12:08 hrs Nestle India was quoting at Rs 17,303.90, down Rs 555.65, or 3.11 percent.

It has touched an intraday high of Rs 17,815.35 and an intraday low of Rs 17,303.90.

It was trading with volumes of 1,656 shares, compared to its thirty day average of 2,869 shares, a decrease of -42.28 percent.

In the previous trading session, the share closed down 2.24 percent or Rs 409.85 at Rs 17,859.55.

The share touched its 52-week high Rs 20,599.95 and 52-week low Rs 16,116.00 on 14 September, 2021 and 25 March, 2021, respectively.

Currently, it is trading 16 percent below its 52-week high and 7.37 percent above its 52-week low.

Market capitalisation stands at Rs 166,836.79 crore.

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