Most brokerage firms retained their views on Nestle India after the FMCG major reported a 66 percent year-on-year (YoY) jump in its December quarter net profit.
As reported by Mint, Nestle India on February 16 reported a net profit of ₹628 crore for the fourth quarter of the year 2022 (Q4CY22). It was ₹379 crore in the year-ago period.
The company follows the January-December financial year.
The company's revenue from operations came in at ₹4,257 crore, up 13.5 percent as compared to ₹3,748 crore in the year-ago period.
Shares of Nestle India ended 1.95 percent higher on February 16. However, in the subsequent session on February 17, shares of the company fell 4 percent in early trade on BSE.
The stock has been broadly in sync with the benchmark Sensex in the last one year.
Brokerage firm Phillip Capital maintained a 'buy' call on the stock with a target price of ₹22,000, implying a 12 percent potential upside.
As per Phillip Capital, Nestle India is "the best way to play the great Indian consumption story.”
"Nestle offers a safe harbour in this VUCA world with earnings resilience (nearly 14 percent earnings per share CAGR over the calendar years 2022-25) on a high share of essential products (more than 80 percent), aggression in the innovation of existing categories, new product development, and increasing its depth of distribution network, particularly in rural areas," said Phillip Capital.
(VUCA is an acronym for volatility, uncertainty, complexity and ambiguity of general conditions. It attempts to reflect the unpredictable forces or a set of challenges, that could affect organizations.)
Phillip Capital said the recent acquisition of India’s pet care business from its global parent and launch of D2C (direct-to-consumer) platform is the cherry on the cake, thereby, providing avenues to further broad based revenue streams.
The brokerage firm has cut its earnings per share (EPS) estimates for the calendar years 2023-24 by two-to-three percent to account for higher than expected capex.
Axis Securities also maintained a ‘buy’ call on the stock with a target price of ₹22,000, valuing the company at 65 times year 2024 EPS.
Axis estimates a revenue CAGR of 11 percent, EBITDA CAGR of 14 percent, and PAT CAGR of 15 percent over 2022-25E.
"We believe Nestle has all the right levers for growth in the long run," said Axis.
The brokerage firm is positive on Nestle due to its consistent resilient performance led by efforts towards rural penetration and market share gains through the RURBAN (rural and semi-urban areas) strategy.
Axis highlighted that constant focus on innovation, premiumising the core categories and launching differentiated products, entry into new categories of the future, and the introduction of the D2C platform to gauge consumer attention have also boosted Nestle's performance.
Brokerage firm Nuvama Wealth Management also maintained a ‘buy’ call on the stock with a target price of ₹23,435. The brokerage firm increased the calendar year 2023 and 2024 EPS by 1.5 percent and 1.1 percent, respectively.
"The focus on innovation, launches, market share and premiumisation will likely boost volume-led growth. Besides, the company’s strategy – top line and market share focus and promising capex plans – is encouraging," said Nuvama Wealth.
Brokerage firm Prabhudas Lilladher has an 'accumulate' call on the stock with a target price of ₹21,021.
Prabhudas Lilladher highlighted that Nestle remains positive on long-term growth opportunities with a focus on innovations, RURBAN penetration, and a sharp initiative that led to efficiency and optimum use of emerging trade channels.
The brokerage firm believes ₹5000 crore capex over the next three years is the testimony of growth potential even though the company may cut dividend payout to fund growth plans.
"Long-term growth drivers remain intact, led by (1) sustained expansion in rural reach (nearly 20 percent of sales) (2) capacity increase in Maggi and confectionary, (3) huge scope of growth in segments like coffee, ready-to-drink and chocolates, and (4) channels of the future like e-commerce (6.5 percent of revenues)," Prabhudas Lilladher said.
Prabhudas Lilladher expects an 11.2 percent PAT CAGR for Nestle over CY21-24. It also expects a moderate return in the near term given pending capex and rich valuations of 59 times calendar year 2024 EPS.
Kotak Institutional Equities has an 'add' call on the stock with a target price of ₹20,700.
The brokerage firm trimmed its calendar year 2023-24E EPS by one-to-two percent, but it rolled over and revise DCF-based fair value to ₹20,700 from ₹20,500 earlier, implying 57 times the March 2025E price-to-earnings ratio.
"Nestle is a play on the Indian packaged foods space, with (1) robust brand leadership driving healthy volume growth, (2) pricing power and premiumization levers, and (3) renewed vigour on rural distribution expansion," said Kotak.
On the other hand, Motilal Oswal Financial Services has maintained a 'neutral' call on the stock with a target price of ₹19,875.
Motilal Oswal said the company's long-term narrative for revenue and earnings growth is highly attractive. However, even as some major input prices have started to soften, Nestle continues to face commodity cost headwinds.
"With four consecutive years of ad-spends-to-sales decline up to the year 2021 and indications that ad-spends were muted in the year 2022 as well (amount not disclosed explicitly), the buffer to protect EBITDA margin erosion from gross margin pressures is limited," Motilal observed.
"Nestle's valuation (56 times the calendar year 2024 price-to-earnings ratio) is expensive and does not offer any significant upside from a one-year perspective. We value the company at 55 times Mar'25 EPS to arrive at our target price of ₹19,875. We reiterate our 'neutral' rating on the stock," said Motilal Oswal.
Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.