nestle india: expensive valuation, pressure on margins could limit the rise of Maggi-maker

NEW DELHI: Nestlé India’s first-quarter revenue growth beat analysts’ assessments, but thanks to rising input costs, it failed to meet Street’s estimates, both in terms of profit net than on that of the margins. Management’s comment indicated rising costs for inputs, including packaging materials, and many analysts on the high street see a maximum single-digit increase in the stock going forward.

YES Securities said Nestle India’s core categories are seeing strong growth due to the opportunity to increase penetration, with aggressive innovations also contributing to growth. He therefore believes that Nestlé should continue to demand a valuation premium over its peers and should deliver steady growth over the medium term despite headwinds from inflation, he said.

That said, the brokerage believes that the stock has not participated in the sector’s recent correction and that absolute upside remains limited.

CLSA maintained a “sell” rating on the stock with a target of Rs 16,250 and it believes the risk-reward ratio still remains unfavorable.

The Maggi maker said its net profit for the March quarter fell by 1.25% year-on-year (YoY) to Rs 594.71 crore from Rs 602.25 crore in the same quarter last year. The company had also reported a 20% decline in profits in the December quarter.

Volume was up nearly 7% year-over-year on a 3.2% base.

Gross margin pressure continued as it contracted 310 basis points year-on-year and 160 basis points sequentially to 55.4%, a 19-quarter low. Motilal Oswal Securities had forecast a margin of 56.5%.

“We believe that cost pressure could negatively affect operating margin going forward. While we appreciate Nestlé India’s longer term investment scenario, driven by its high growth potential, high 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, suggesting no upside for the stock. title.

Axis Securities said it appreciates management’s efforts to drive revenue growth despite a weak demand environment and continued solid progress towards increasing penetration in smaller cities to drive growth.

“However, we believe that near-term commodity headwinds will keep margins under pressure. We maintain our guidance and postpone our guidance to March 2024 with a revised target of 18,300 rupees from 18,600 previously,” Axis Securities said. .

Meanwhile, Nomura India expects Nestlé’s investments in data-driven consumer insights and expanding geo-targeted distribution will continue to deliver results and contribute to growth. in large scale.

Although he expects Nestlé’s near-term margins to remain under pressure due to high input cost inflation despite recent price increases, he has a buy rating on the stock with a target of 21,150 rupees.

The stock traded at 18,159.90 in Friday’s trade, down 0.25%.


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