Prabhudas Lilladher has given Accumulate recommendation for Nestle India with a target price of Rs. 20,111 in its research report issued on Oct 19, 2022
Prabhudas Lilladher’s research report on Nestle India
We cut CY23/24 EPS estimates by 3.5%/2.7% following 118bps QoQ gross margin slippage in 3Q22 despite double digit topline growth and strong momentum across key brands. Growth momentum was intact across large metros & smaller towns and across channels particularly MT & OOH. Medium to long term growth drivers remain intact led by 1) sustained expansion in rural reach (~ 20% of sales) 2) availability of capacity in Maggi post expansion 3) huge scope of growth in segments like coffee, RTD & Chocolates and 4) channels of future like E-commerce as well as newly launched D2C website platform – mynestle.in (7.2% of revenues). Although we expect Nestle to gain from lower costs of Palm oil while firm prices of food grains, coffee and milk might prevent a sharp uptick in margins in near term. We factor in EBIDTA margin decline of 170bps in CY22 and a gradual recovery of 90bps over coming couple of years. We estimate 11.2% PAT CAGR over CY21-24.
We expect slow returns given near term margin pressure and rich valuations of 66.1x CY23 EPS. Maintain Accumulate with a DCF based TP of Rs 20,111 (Rs20,178 earlier).