Buy Nestle India, target price Rs 19,125: Edelweiss
The focus on innovation, launches, market share and premiumisation is likely to boost volume-led growth.
By ETMarkets.com | Updated:
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Edelweiss has given a buy rating to Nestle India with a target price of Rs 19,215.
Nestle’s first quarter CY20 revenue, EBITDA and PAT growth of 10.8 per cent, 5.3 per cent and 13.4 per cent year on year surpassed the brokerage estimates. This was the tenth consecutive quarter of double-digit domestic sales growth—up 10.7 per cent year on year—largely riding volume and mix. Exports revenue grew 12.9 per cent year on year for the first time in five quarters as lower coffee exports to Turkey are now in the base.
High commodity prices continued to drag gross margin (down 223bps year on year). Cost control—a likely cut in ad spends (other expenditure down 168bps year on year)—aided EBITDA margin a tad, which dipped only 125bps year on year. That said, Nestle continues to outperform peers and is likely going to be the only FMCG company to report positive domestic sales growth in Q1CY20. Its high innovation & premiumisation agenda and cluster-based distribution strategy are also on track, and is expected to sustain. Extension of the MD’s tenure for another five years is a positive as well.
The share price moved down by -1.69 per cent from its previous close of Rs 17461.95. The last traded stock price is Rs 17167.70. Incorporated in 1959, Nestle India has a market cap of Rs 168360.64 crore.
Investment Rationale
The focus on innovation, launches, market share and premiumisation is likely to boost volume-led growth. Besides, the company’s new strategy—top line and market share focus—is encouraging. The brokerage retains buy rating with a target price of Rs 19,215 (65 times one-year forward EPS). At CMP, the stock is trading at 65.8 times CY21E EPS.
Financials
For the quarter ended March 31, 2020, the company reported standalone sales of Rs 3305.78 crore, up 5.59 per cent from last quarter sales of Rs 3130.74 crore and up 10.84 per cent from last year's same quarter sales of Rs 2982.39 crore. The company reported net profit after tax of Rs 525.43 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 62.8 per cent stake in the company as of March 31, 2020, while FIIs held 11.8 per cent, DIIs 9.2 per cent and public and other 16.2 per cent.
Nestle’s first quarter CY20 revenue, EBITDA and PAT growth of 10.8 per cent, 5.3 per cent and 13.4 per cent year on year surpassed the brokerage estimates. This was the tenth consecutive quarter of double-digit domestic sales growth—up 10.7 per cent year on year—largely riding volume and mix. Exports revenue grew 12.9 per cent year on year for the first time in five quarters as lower coffee exports to Turkey are now in the base.
High commodity prices continued to drag gross margin (down 223bps year on year). Cost control—a likely cut in ad spends (other expenditure down 168bps year on year)—aided EBITDA margin a tad, which dipped only 125bps year on year. That said, Nestle continues to outperform peers and is likely going to be the only FMCG company to report positive domestic sales growth in Q1CY20. Its high innovation & premiumisation agenda and cluster-based distribution strategy are also on track, and is expected to sustain. Extension of the MD’s tenure for another five years is a positive as well.
The share price moved down by -1.69 per cent from its previous close of Rs 17461.95. The last traded stock price is Rs 17167.70. Incorporated in 1959, Nestle India has a market cap of Rs 168360.64 crore.
Investment Rationale
The focus on innovation, launches, market share and premiumisation is likely to boost volume-led growth. Besides, the company’s new strategy—top line and market share focus—is encouraging. The brokerage retains buy rating with a target price of Rs 19,215 (65 times one-year forward EPS). At CMP, the stock is trading at 65.8 times CY21E EPS.
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Financials
For the quarter ended March 31, 2020, the company reported standalone sales of Rs 3305.78 crore, up 5.59 per cent from last quarter sales of Rs 3130.74 crore and up 10.84 per cent from last year's same quarter sales of Rs 2982.39 crore. The company reported net profit after tax of Rs 525.43 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 62.8 per cent stake in the company as of March 31, 2020, while FIIs held 11.8 per cent, DIIs 9.2 per cent and public and other 16.2 per cent.
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