Nestle India Ltd. share price target

Recommendation: With an 10% upside potential from the CMP, we maintain our BUY rating on the stock.

Q2 revenue up 15% YoY led by strong growth across categories and geographies; margins remained healthy

Nestle’s revenue growth of 15% YoY in Q2CY23 was largely in line with our estimates. Double-digit growth across segments for fifth consecutive quarter was driven by (1) deeper distribution expansion in lower-tier towns and villages (see our report), (2) strong performance in mega and metro cities, and (3) a portfolio which is better insulated to overall market slowdown.

Our analysis of Nestle’s consumer-price retention power in milk products and nutrition segment (~40% of revenues and >50% of profits) indicates potential for material gross margin expansion in the event of milk price deflation (See Table 1).

Recommendation: With a 11% upside potential from the CMP, we maintain our BUY rating on the stock.

Nestle’s revenue growth of 21% YoY (highest ever in last decade on LFL basis) was above our (and consensus) estimates driven by price hikes. Maintaining volume growth trajectory coupled with mix improvement despite price hikes is impressive (no surprises though).