Nestle's Q3 results impress analysts, but stock upside unlikely

NEW DELHI: Shares of Nestle climbed 2 per cent in Friday’s trade after the company reported a 38 per cent rise in net profit at Rs 473 crore for the December quarter.

The maker of Maggi noodles, Kitkat and Nestle Munch said its margins for the quarter expanded to 21.5 per cent compared with 19 per cent in the year ago.

Analysts said that the company’s quarterly results were impressive, but the positives are factored in the prevailing market price.


“Double-digit domestic sales growth, while lower than forecast, is very healthy in the current environment,” said Motilal Oswal Securities.

The brokerage said that Nestle’s longer-term narrative on topline and earnings growth remains extremely attractive not just because of successful implementation of growth strategy in recent years, but also because of the packaged food segment in India offering immense growth opportunities, particularly for a company with a strong pedigree and distribution strength.

“But current valuations of 58.1 times CY21 EPS and 48.6 times CY22 EPS appear to be completely factoring in the upside for the next one year,” the company said.

Emkay Global said that following a substantial outperformance over the last two years, Nestle’s stronger growth visibility appears to be priced in at 50 times March 2022 earnings per share.

This brokerage has downgraded Nestle’s rating to ‘Hold’ from ‘Buy’.

“We remain fairly confident that the company will be able to sustain healthy earnings growth of 20 per cent over the next two years, driven by volume. We feel that the valuation is fair as the stock trades at 55 times CY21 EPS. We thus maintain an ‘Accumulate’ rating with a target price of Rs 15,980, implying a downside of 3 per cent,” Nirmal Bang Institutional Equities.

The shares of the company closed 0.41 per cent lower at Rs 16,350 on BSE.