Nestle India March Quarter Results Review - Steady Performance; But Valuations Expensive: Motilal Oswal

Motilal Oswal Report

Nestle India Ltd. reported 9% YoY revenue growth (estimate: 8.5%) during the quarter ended March 2024. The company has achieved 12% revenue compound annual growth rate 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 Rs 2.3 billion for the quarter.

Gross margin expanded 300 bp YoY to 56.8% (in line); gross profit was up 15% YoY. Input prices are witnessing inflationary pressures, with coffee and cocoa prices at all time highs. Cereals, grains (MSP-led), and milk are also experiencing high inflation. Nestle India posted a strong gross margin recovery last year (up 300 bp in the last 12 months); but FY25 may see some pressure on gross margin. Ebitda margin expanded 220 bp YoY, while Ebitda rose 19% YoY to Rs 13.4 billion (estimate: Rs 12.8 billion).

Nestle India has entered into a joint venture agreement with Dr. Reddy’s Laboratories Ltd. aimed at introducing its health science nutraceutical portfolio to consumers. This JV is likely to become operational in Q2 FY25. The company has also launched NESPRESSO coffees and machines in India, with plans to open the first NESPRESSO boutique in Delhi.

Nestle India has been strategically implementing its RURBAN strategy to expand its distribution reach in the untapped markets. There has been a broad-based growth across brands for the last few years.

Reiterate Neutral with a target price of Rs 2,400 (based on 60 times price/earning Mar-26E) due to expensive valuations.

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