Motilal Oswal has given Neutral recommendation for Nestlé India with a target price of Rs. 18,700 in its research report issued on Oct 19, 2022
Motilal Oswal’s research report on Nestlé India
Nestlé India (NEST) delivered a slight beat on our sales estimates. Sales growth was driven by double-digit YoY growth across segments, led by better volumes, mix and higher realizations. While demand and sentiment remained strong in metros, it was robust across smaller towns and rural markets as well – an encouraging development. Gross margin came in 170bp lower than our estimate, on account of higher commodity costs for key inputs. However, management commentary points to early signs of softening in edible oils and packaging materials even as fresh milk, fuels, grains, and green coffee costs remain firm. Nevertheless, we believe gross margin may have bottomed out in 3QCY22 and a recovery led by lower input costs and better realizations is imminent in the coming quarters. The e-commerce channel continued to deliver robust growth and accounted for 7.2% of 3QCY22 sales. NEST has doubled-down on this channel by announcing the launch of its D2C platform in the NCR region and plans to expand its presence to other parts of the country.
We value the stock at 55x Sep’24 EPS to arrive at our TP of INR18,700. We reiterate our Neutral stance on fair valuations.