Prabhudas Lilladher has given Accumulate recommendation for Nestle India with a target price of Rs. 19426 in its research report issued on Apr 21, 2022
Prabhudas Lilladher’s research report on Nestle India
We cut CY22/23 EPS estimates by 2.1%/1.6% following 313bps gross margin slippage in 1Q22 despite double digit topline growth and strong momentum across key brands. We expect near term volume pressures led by grammage reduction LUP’s in chocolates, Maggi and Milk products. Medium to long term growth drivers remain intact led by 1) sustained expansion in rural reach (only 20% of sales) 2) availability of capacity in Maggi 3) huge scope of growth in segments like coffee, RTD and Chocolates and 4) higher growth in channels of future like E-commerce (up 71% YoY in 1Q, 6.3% of domestic revenues). While we expect further pickup in growth in OOH segments, 4th covid wave might be a risk in the near term. We expect near term margin pressure to sustain given inflation in Coffee, Palm oil, Milk and SMP. We factor in EBIDTA margin decline of 140bps in CY22 (40bps over CY21-23) as scale efficiencies, mix and pricing actions won’t be able to neutralize 10-year high inflation.
We estimate 12.4% PAT CAGR over CY21-23. We expect back ended returns given near term margin pressures and rich valuations of 62.3x CY23 EPS. We maintain Accumulate with a TP of Rs 19,426 on DCF basis (Rs19,626 earlier).