YES Securities said Nestle India’s core categories have a strong runaway for growth given scope for increase in penetration, with aggressive innovations also adding to the growth. It thus feels that Nestle should continue commanding a valuation premium to peers and should deliver steady growth in the medium term despite inflation headwinds, it said.
That said, the brokerage believes the stock has not participated in the recent sector correction, and absolute upside remains limited.
CLSA has maintained a ‘sell’ rating on the stock with a target of Rs 16,250 and it feels the risk-reward still stays unfavourable.
The Maggi-maker said its net profit for the March quarter fell 1.25 per cent year-on-year (YoY) to Rs 594.71 crore compared with Rs 602.25 crore in the same quarter last year. The company had also reported a 20 per cent drop in profit in the December quarter.
Volume grew nearly 7 per cent YoY on a base of 3.2 per cent.
Gross margin pressure continued as it contracted 310 basis points YoY and 160 bps sequentially to 55.4 per cent, which was a 19-quarter low. Motilal Oswal Securities had expected margin at 56.5 per cent.
“We believe the cost pressure may adversely affect operating margin going ahead. While we like the longer-term investment case for Nestle India driven by its high topline growth potential, expensive valuations and commodity cost concerns warrant a neutral rating on the stock, in our opinion,” Motilal Oswal Securities said in a note. This brokerage has a target of Rs 18,450, which suggests no upside for the stock.
Axis Securities said it appreciates management efforts to drive topline growth despite a weak demand environment and continued strong progress towards increasing penetration in small towns to drive growth.
“However, we believe near-term raw material headwinds will keep margins under pressure. We maintain hold and rolled over our estimates to March 2024 with a revised target of Rs 18,300 from 18,600 earlier,” Axis Securities said.
Meanwhile, Nomura India expects Nestle’s investments in data analytics-based consumer insights and geo-targeted distribution expansion will continue to yield results and contribute to broad-based growth.
While it expects near-term margins for Nestle to remain under pressure due to elevated input cost inflation despite recent price increases, it has a buy rating on the stock with a target of Rs 21,150.
The stock was trading at 18,159.90 in Friday’s trade, down 0.25 per cent.
