Nestle India Ltd. share price target

With a 12% upside potential from the CMP, we maintain our BUY rating on the stock.

Nestle India (NEST) reported 9% YoY revenue growth (est. 8.5%) during the
quarter ended Mar’24. The company has achieved 12% revenue CAGR over a
five-year period (CY18-FY24). Domestic sales grew 9% YoY, well supported by
pricing, mix, and volume growth. Export sales rose 19% YoY to INR2.3b for the
quarter

Positively, low cocoa content in Nestle products (~5% vs ~20% in peers) provides market share gain opportunity in the chocolate category (Nestle has higher revenue salience in wafer segment).

Strong growth witnessed across geographies driven by sustained growth in domestic markets and healthy double-digit growth in exports

Our REDUCE call on Nestlé is a factor of valuations (62x P/E for FY26) pricingin the positive outlook. Capacity augmentation (Rs64bn capex spends over
CY20-25), a wider parent portfolio (gaining relevance in the Indian context),
and thrust on rural, all bolster the fundamentals

Recommendation: With a 12% upside potential from the CMP, we maintain our BUY rating on the stock.

Domestic sales continue to underpin growth, rising 8.9% YoY in the December quarter on better pricing, volumes and product mix

Incremental insights from Nestle's analyst meet were – (1) sales-driven initiatives have contributed ~3-4% of ~7% volume CAGR over last 5 years (see our report); however, incrementally, line selling will be the key driver (though at a slower pace), (2) penetration-led volume growth (through continued thrust on rurban strategy), (3) dialling up of innovation (multiple niche launches; 10 new projects in the pipeline) to drive its contribution to 10% (from 6% currently) in the medium term.

Innovation and market penetration-led volume growth remain strategic focus areas; growing emphasis on rural markets

Nestle’s revenue growth of 10% YoY is healthy and ~21-22% YoY growth in EBITDA/PAT is even stronger, driven by price retention benefits given stability in the raw material price (especially milk - report). Revenue growth was strong across key segments driven by (1) deeper penetration in RURBAN (lower-tier towns and villages (report), (2) a portfolio which is better insulated to market slowdown.

Domestic business posted double-digit growth in Q3 with continued margin expansion

We recommend a BUY rating on the stock with a near-term TP of Rs 24,100, implying an upside of 10% from the CMP.