Nestle India Ltd. share price target

Gross margins pressure to abate given sharp decline in commodities Nestle has sustained strong sales momentum given strong show by Maggi and Chocolates and also pantry stocking in key categories. Our channel checks suggest sustained growth in 2Q21 also given that lockdown is forcing consumers to undertake pantry stocking in Maggi, tetrapack Milk, Coffee and Dairy whitener in particular. Our sales mix analysis suggested that Nestle is...

12 May 2020 Nestle Indias (NEST) 1QCY20 double-digit domestic sales growth in the current environment (due to the COVID-19 crisis) is impressive. While higher milk and milk derivative costs have led to margin compression, long- term earnings prospects remain robust. Valuations of 67x CY21E EPS and 56.5x CY22E EPS fully factor in the upside from a 1-year perspective. Domestic sales grew 10.7% during the quarter, largely driven by volume and mix. EBITDA grew 4.7% YoY to INR8b (v/s est. INR7.8b), PBT was flat YoY at INR7.

Net sales jumped 8.8% year-on-year (Y-o-Y) to Rs 3,149.29 crore in Q4 FY20. In Q4 FY19, total sales increased 8.8%. Domestic sales increased 10% through a combination of volume & mix. Export sales have dropped 9. 7% due to lower exports of coffee to Turkey. Profit before tax surged 17.7% to Rs 614.62 crore Y-o-Y. Current tax expenses slumped 21.8% to Rs 144.41 crore during the period under review. Profit after tax surged 38.41% to Rs 473.02 crore Y-o-Y....

Higher brand investments towards new launches aiding growth Nestl India (NIL) has been able to deliver 8-12% volume growth (as per our estimates) in the domestic business over last seven quarters backed by aggressive new launches. NIL has increased marketing spend by ~20% over last one year to support new launches. Contribution to sales from new launches has grown from 1.5% to 3.7% over last three years. During the quarter, NIL continued its innovations in market across categories with the launch of KitKat Dessert Delight Rich Chocolate Fudge, MAGGI Fusian Range...

We cut our CY20 and CY21 EPS by 5.4% and 4.7% and maintain Reduce rating on Nestle given that it represents a classic confluence of life time high PE multiples and EBIDTA margins in a scenario of rising input costs with an estimated 10% PAT CAGR over CY19-21. Although NESTLE has been able to report a strong 10% domestic sales growth in a tepid demand scenario, it has...

13 February 2020 Double-digit domestic sales growth, while lower than forecast, is very healthy in the current environment. Higher milk & milk derivative costs are likely to weigh on near-term earnings growth, but longer-term prospects remain robust. Valuations of 58.1x/48.6x CY21/22E EPS fully factor in upside from one- year perspective. Domestic sales grew 10% YoY, largely driven by volume/mix. Export sales declined 9.7% YoY due to lower coffee exports to Turkey. Gross margin shrank 220bp YoY to 56.8% due to higher commodity cost, particularly milk and its derivatives. Higher staff costs (+60bp YoY to 10.2%) and lower other expenses (-290bp YoY to 25.2%) led to EBITDA margin expansion of 20bp YoY to 21.

Domestic sales keep the growth momentum going Q3CY19 standalone revenue increased by 9.4% YoY to Rs. 3,216cr, primarily led by domestic sales (+10.5% YoY to Rs. 3,039cr) driven by better volumes and mix. This is partially offset by weaker export sales (-7.1% YoY to Rs. 160cr) owing to lower coffee exports to Turkey. EBITDA grew 3.6% YoY to Rs. 756cr, despite contraction in EBITDA margin (-130bps YoY to 23.5%) due to higher raw material prices, particularly milk and its derivatives. PAT rose 33.5% YoY to Rs. 595cr, helped by lower depreciation (16.1% YoY to Rs. 78cr) and taxes (-53.7% to Rs. 104cr) under the new tax regime. Reintroduction of Milo helps regain a slice of MFD segment pie...

"Tax Expense" (including revaluation of deferred tax assets & liabilit ies) has been computed at the lower tax rates introduced by t he Taxation Laws (Amendment) Ordinance, 2019 dated 20 September 2019. The impact of this change, including that for the previous quarter, has been recognised in the current quarter. Accordingly, the tax...

Growth momentum in domestic business remains robust Nestl India (NIL) continued to maintain its growth momentum during the quarter with strong YoY double digit growth of 10.5% in domestic business backed by aggressive new launches. The company has increased the pace of innovations (61 launches since 2016) out of which 40-45 have been successful, resulting in ~70% successful innovations with only 10% of total being product withdrawals. Contribution to sales from new launches has grown from 1.5% to 3.7% over the last three years. We believe aggressive...

a couple of years back. Milo is the largest MFD brand globally with sales exceeding USD2.5bn. Milo is the Global leader in malt-based drinks with over 36 million serves consumed daily in more than 50 countries. Milo mainly competes in the chocolate segment which has presence of players like Chocolate Horlicks, Bournvita, Boost and Complan. We believe that the launch is well timed given that Glaxo Consumer is in the process of being acquired by HUL and Complan is in integration process post...