Accumulate Nestle India, target Rs 10100: Emkay Global Financial Services

Emkay Global Financial Services has an accumulate call on Nestle India Ltd. with a target price of Rs 10100. The current market price of Nestle India Ltd. is Rs 9513.05 Time period given by analyst is year when Nestle India Ltd. price can reach defined target.
Nestle India Ltd., incorporated in 1959, is a large-cap food processing company with a market cap of Rs 92052.42 crore.

Investment rational by Emkay Global
Nestle reported a robust quarter with EBITDA and net profit growth of 35% and 40%, respectively, which was ahead of our expectations by 7%. Comparable sales grew by 13% to Rs27.5bn, in line with expectations. However, operating margin witnessed strong improvement of 440bps, led by lower input costs and cost savings.  Sales growth was driven by broad-based growth across categories and is indicative of near double-digit volume growth.


We expect the growth momentum to sustain on the back of Nestle’s faster product and channel expansion with entry into new categories. Softer input prices and cost efficiencies will result in margin expansion and stronger earnings growth going ahead.
With the strong Q1CY18 performance, we increase our earnings estimates by 2-3%. The stock trades at 40x June’20E earnings and 25x June’20E EBITDA, which is still at a discount to peers. Maintain ACCUMULATE with a revised TP of Rs10,100 (from Rs9,900).