Nestle India share price; Jefferies retains Hold rating with price target of Rs 18,000

Jefferies says it expects limited supply disruptions for Nestle India, at least for now due to localized restrictions unlike the last year along with the learnings and better preparedness on the part of the industry. However, out-of-home demand would likely get impacted, like last year. Inflation in key input prices would be a key monitorable going forward. Jefferies retained a Hold rating on the stock with a price target of Rs 18,000. Nestle India share price closed at Rs 17,115, up Rs 25 or 0.15% on Tuesday (markets are closed today). Nestle share price has fallen from Rs 17,429 to Rs 17,115 in the last 1 week.

Jefferies said while the Gross margin was a tad better than their estimates, down only 50bps QoQ and up 240bps YoY to 58.4%. Gross profit growth was hence strong at 14%. However, going forward, Nestle India’s management has sounded caution on the sharp escalation in prices of key inputs and packaging materials, which may impact GM.

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Nestle's out-of-home (OOH) portfolio recovered further QoQ but remains impacted by Covid-19 disruptions. No comments were made by Nestle India’s management on possible disruption due to the second Covid-19 wave; however, they said that now the organisation has learnt to cope with the operating volatility in the pandemic. However, local restriction would still impact the demand for OOH products, in Jefferies view.

IDBI Capital says Nestle India reported in-line results driven by strong double digit growth momentum in domestic business (3rd consecutive quarter) while revenue from exports continues to decline. Key brands like Maggi noodles, Kitkat, Nescafe classic, Maggi Sauce, Milkmaid, Maggi Masala Magic grew by double digits during the quarter driven by higher in-home consumption. Revenue from e-commerce grew 66%YoY. Gross margin expanded for 3rd consecutive quarter however, management highlights inflation in the cost of raw material to be a key challenge going forward. Dividend announcement of Rs 25/share is positive.

IDBI Capital has marginally trimmed other income estimates for CY21-22E driven by lower expected realization of interest from bank deposits. IDBI Capital maintains HOLD rating with a revised price target of Rs 16,195.
 
IDBI Capital says it does not expect Nestle India’s revenue to be impacted by the second-wave of COVID19. During the last 4 quarters (after we got struck by COVID-19 during 4QFY20), Nestle has delivered the most resilient topline growth in the entire FMCG space. IDBI Capital maintains their revenue and margin estimates.