Nestle shares at Rs 22,000? Here’s what analysts say about the Maggi maker after Q4 results
Nestle India, the listed Indian arm of S FMCG conglomerate, announced its results for the period that ended on December 31, 2022. Brokerage firms remained mixed on the Maggi maker after the company missed revenue expectations, while other parameters were in-line with the expectations.
FMCG major Nestle India on Thursday posted a 66 per cent year-on-year (YoY) rise in net profit at Rs 628 crore for the fourth quarter that ended December 2022. The profit stood at Rs 379 crore in the corresponding quarter last year. The company, which follows a January-December financial year, has also announced a final dividend of Rs 75 apiece.
Nestle India’s sales rose 14 per cent to Rs 4,233 crore in the December quarter, compared with Rs 3,715 crore in the same quarter of last year. Revenue from operations too jumped 14 per cent YoY to Rs 4,257 crore for the reporting period. The company has reported an EBITDA of Rs 973 crore for the fourth quarter that ended December.
Phillip Capital believes that Nestle India is the best way to play ‘the great Indian consumption story’ as it sees more avenues to further broad base revenue streams, however, it has cut its EPS estimates for CY23-24 by 2-3 per cent to account for higher than expected capex but maintain a ‘buy’ rating with a target price of Rs 22,000.
“Nestle offers safe harbor in this volatile, uncertain, complex and ambiguous (VUCA) world with earnings resilience on a high share of essential products, aggression in the innovation of existing categories, new product development, and increasing its depth of distribution network, particularly in rural areas,” said Phillip Capital.
Axis Securities also remains positive on Nestle India despite the challenging environment including high raw material inflation and rural slowdown. It believes that Nestle has all the right levers for growth in the long run and has suggested ‘buy’ it with a target price of Rs 22,000.
“Nestle has consistently delivered resilient performance-led efforts towards rural penetration and market share gains; constant focus on innovation leading growth; preimmunizing the core categories and launching differentiated products; entry into new categories of the future; and introduction of D2C platform to gauge consumer attention,” it said.
Shares of Nestle India dropped more than 3 per cent to clutch around Rs 19,000 on Friday. Phillip Capital and Axis Securities, however, suggest a 16 per cent upside in the counter.
On the other hand, HDFC Securities said that Nestle reported a miss on revenue while the margin was ahead of expectations. Domestic revenue was up but it witnessed about 2 per cent YoY volume contraction in 4Q due to sustained inflation impacting demand in the semi-urban market.
Nestle continued to focus on distribution strengthening, category expansion and capacity building, capex of Rs 5,000 crore planned for the next three years. We value Nestle at 52x P/E on December 24E EPS to derive a target price of Rs 18,500. With a rich valuation, the absolute upside is limited in the medium term, it said with a ‘reduce’ rating on the stock.
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 CY21 and indications that ad-spends were muted in CY22 as well, the buffer to protect EBITDA margin erosion from gross margin pressures is limited, said Motilal Oswal.
“Its valuation at 56x CY24E P/E is expensive and does not offer any significant upside from a one-year perspective. We value the company at 55x March 2025 EPS to arrive at our target price of Rs 19,875. We reiterate our ‘neutral’ rating on the stock,” it said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)
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