Add Nestle India, target price Rs 2,600: HDFC Securities

HDFC Securities has an add call on Nestle India with a target price of Rs 2,600. The current market price of Nestle India Ltd. is Rs 2349.5. Nestle India Ltd., incorporated in 1959, is a largecap company (having a market cap of Rs 225463.33 crore) operating in FMCG sector.

Nestle India Ltd. key products/revenue segments include milk products, prepared dishes & cooking aids, confectionery, beverages (powdered), export incentives, other operating Revenue for the year ending 31-Mar-2024.

Financials

For the quarter ended 30-09-2024, the company has reported a Standalone total income of Rs 5110.86 crore, up 5.31% from last quarter's total income of Rs 4853.07 crore and up 0.80 % from last year same quarter's total income of Rs 5070.09 crore. The company has reported net profit after tax of Rs 986.36 crore in latest quarter.

Investment Rationale
HDFC Securities believes there is a short-term blip in the long-term structural story of Nestle India and it has the potential for double-digit revenue growth in the medium term, owing to: (a) ramping up its rural distribution network, currently under-indexed; (b) focusing on substantial growth in its out-of-home channel; (c) prioritizing the salience of NPD and category creation efforts; (d) investing in capacity expansion (with a capex of Rs 65 billion over CY20-25) to align with long-term penetration-led volume growth objectives; (e) India's prioritization as one of the top 10 markets despitecontributing only 2% of global revenue.

The brokerage has cut its EPS estimates by 6-7% for FY25-26 and maintains an ADD rating with a target price of Rs 2,600 (65x Dec-26 EPS) and recommends investors to accumulate the stock on any negative news flow and weak 2QFY25 results.

Promoter/FII Holdings
Promoters held 62.76 per cent stake in the company as of 30-Sep-2024, while FIIs owned 11.94 per cent, DIIs 9.38 per cent.