Shares of Nestle India rose 2 per cent in Thursday’s trade after the FMCG firm posted a good set of numbers for the September quarter.
The stock rose 1.9 per cent to hit a high of Rs 20,130 on BSE. The FMCG scrip was the top Sensex gainer in early trade.
The FMCG firm reported an 8.25 per cent year-on-year (YoY) rise in net profit at Rs 668.34 crore for the September quarter compared with Rs 617.37 crore in the corresponding quarter last year.
Revenue from operations rose 18.24 per cent to Rs 4,591 crore in the third quarter from Rs 3,882.57 crore in the same quarter last year. This was the highest quarterly sales growth in five years.
Prabhudas Lilladher expects Nestle India to gain from lower costs of palm oil while firm prices of food grains, coffee and milk might prevent a sharp uptick in margins in the near term, it said.
“Medium to long term growth drivers remain intact led by sustained expansion in rural reach, availability of capacity in Maggi post-expansion, the huge scope of growth in segments like coffee, RTD & Chocolates and channels of future like E-commerce as well as newly launched D2C website platform – my nestle.in,” it said.
The brokerage firm expects slow returns given near-term margin pressure and rich valuations of 66.1x CY23 EPS. It has maintained ‘accumulate’ with a target price of Rs 20,111.
According to Motilal Oswal, the valuation of Nestle India at 64.7 times 2023E P/E is expensive and does not offer any significant upside from a one-year perspective.
“Even as some major input prices have started to soften, Nestle India continues to face commodity cost headwinds,” it said.
“With four consecutive years of ad-spends to sales decline up to 2021 (to 5.5 per cent of domestic sales in 2021, the second lowest in the last seven years), the buffer to protect Ebitda margin erosion from gross margin pressures is limited,” the brokerage firm added.
Nuvama Institutional Equities said gross margins for Nestle India continued to be under pressure due to high raw material inflation.
However, it noted that Nestle India continues to impress with robust growth via portfolio and distribution expansion strategies.
“Given revenue beat and easing palm oil cost (milk remains a concern), we expect the margin profile to improve,” the brokerage firm added.
At 11:15 am, Nestle India shares were trading 1.21 per cent higher at Rs 19,994.65 on BSE.