Why are Maggi instant noodles maker Nestle India's shares falling?

Nestle India shares succumbed to negative territory on Friday, reversing course a day after the company's strong quarterly results and a dividend of Rs 75 per share sent its shares leaping into the green following lacklustre moves around the flatline for much of the session. Nestle India — whose popular products include Maggi instant noodles — fell by Rs 611.8 or 3.1 per cent to end at Rs 19,009 apiece on BSE.  

The consumer products company reported its financial results during market hours on Thursday, sending its shares rising about two per cent for the day. Nestle India reported a 65.7 per cent year-on-year jump in net profit for the quarter ended December 2022, beating Street estimates.

Nestle India Q4 results

The consumer products firm — which follows a January-December financial year — reported a net profit of Rs 628 crore for the three-month period. 

Nestle India's revenue grew 13.6 per cent to Rs 4,257 crore for the three-month period, according to a regulatory filing, and margin — a key measure of profitability for businesses — remained unchanged at 22.9 per cent. 

According to Zee Business research, the company's quarterly profit was estimated at Rs 617 crore and revenue at Rs 4,341 crore.

Why Nestle India shares are falling

Analysts say concerns persist on Dalal Street about the payment of royalty by multinational companies (MNCs) to their foreign parents. Nestle India's pact on payment of royalty to parent Nestle SA is up for a renewal in 2024.

Currently, Nestle India pays a royalty of 4 .5 per cent to its parent.

Nestle India's management has said the royalty payment to aid the parent's operations and manufacturing. The parent company — Nestle SA — has about 2,000 products.

What brokerages recommend on Nestle India after the company's Q4 results

According to JPMorgan, which reiterated its 'overweight' rating on Nestle India with a target price of Rs 21,200 — implying upside potential of eight per cent from Thursday's closing price, the company's quarterly performance was mixed, as the margin exceeded the brokerage's estimates but low unit packs (LUPs) weighed on volumes. 

According to Goldman Sachs, which raised its target price for Nestle India by Rs 400, large price hikes in low unit packs led to sharp moderation in volume growth. The brokerage found the company's quarterly performance in line with its estimates. 

Goldman Sachs brought down its earnings per share (EPS) estimates for Nestle India by 0.2 per cent for 2023 and 1.1 per cent for the next year.

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