Why Brokerages See Higher Sales For Nestle India In Near Term
Packets of Maggi 2-Minute Noodles, manufactured by Nestle India Ltd., sit alongside other food products. (Photographer: Dhiraj Singh/Bloomberg)

Why Brokerages See Higher Sales For Nestle India In Near Term

Most analysts expect an increase in in-home consumption of packaged goods and ready-to-cook products amid fresh curbs to fight the renewed wave of Covid-19 infections to boost near-term sales of Nestle India Ltd.

The maker of Maggi instant noodles and Nescafé coffee saw its domestic sales rise 10.2% year-on-year in the quarter ended March. The company, which follows January-December fiscal, posted a 15% increase in net profit over the year earlier at Rs 602.2 crore during the reported quarter.

Its revenue rose 9% to Rs 3,610.8 crore, against the Rs 3,636.5-crore consensus forecast of analysts tracked by Bloomberg.

According to Nomura, Nestle India’s two-year revenue compounded annual growth rate continues to be in double-digits, and will likely be one of the highest among peers. Demand in out-of-home channels continues to improve quarter-on-quarter, but remained constrained due to the ongoing second wave of the pandemic.

Emkay Global agreed. While the recent lockdowns across the country are likely to impact the company’s near-term growth, its categories are likely to be resilient, offering better growth versus peers.

Brokerages maintained their ‘buy’ or ‘hold’ call for Nestle India but said it’s trading at higher valuations than peers. Of the 43 analysts covering the stock, 21 have a ‘buy’ rating, 17 suggest a ‘hold’ and five recommend a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price targets implies an upside of 4.7%.

Shares of Nestle India dropped as much as 1.74% to Rs 16,799 as of 9:45 a.m. on Thursday compared with 0.6% fall in the Nifty 50.

Here’s what brokerages have to say about Nestle India’s first-quarter results...

Nomura

  • Maintains ‘buy’ with a target price of Rs 20,500 a share.
  • Significant increase in new launches/product innovations, supported by fresh capacities in place from the new capex plan.
  • Stable sales growth with a positive bias on the back of sustained high demand for at-home/ready-to-cook products.
  • Nestle’s strong focus on volume growth with increasing shift from the unorganised to organised sector to propel higher sales growth over the near to medium term.
  • Agri-basket inflation is still lower compared to crude basket, and with its greater skew towards agri inputs and superior pricing power, its gross profit margin will be relatively less impacted.

Motilal Oswal

  • Maintains ‘neutral’ rating with a target price of Rs 18,300 a share.
  • Performance has been good all round and primacy has been given to volume-led sales growth.
  • Ad spends consistently at elevated levels.
  • Ongoing partial lockdowns could boost near-term sales, the long-term narrative for revenue and earnings growth remains attractive.
  • Successful implementation of growth strategy in recent years is a positive.
  • The packaged foods segment in India offers immense growth opportunities.

IDBI Capital

  • Maintains ‘hold’ rating with a target price of Rs 16,195 apiece.
  • Don’t expect Nestle India’s revenue to be impacted by the second-wave of Covid-19.
  • “During last four quarters (after we got stuck by Covid-19 during 4QFY20), the company has delivered most resilient top line growth in the entire FMCG space.”

Emkay

  • Maintains ‘hold’ with a target price of Rs 16,800 a share.
  • Inflation in key input prices appears manageable and can be largely offset by modest price hikes.
  • Recent lockdowns may impact Q2 and CY21 earnings.
  • The stock looks fairly valued and offers limited near-term upsides.

Nirmal Bang

  • Maintains ‘accumulate’ with a target price of Rs 17,550 apiece.
  • Covid wave and the resultant lockdown will benefit packaged foods companies as consumption focus again shifts to in-home consumption in the near term.
  • The structural story remains strong in the fast-growing packaged foods space in India.
  • Can deliver strong growth going forward as well and can gain share in its core categories, led by distribution expansion, further strengthening of its position in rural areas.
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