HDFC Securities recommended reduce rating on Nestle India with a target price of Rs 14,080 in its research report
Nestle’s 3QCY20 was healthy as the company clocked 10% YoY growth (HSIE 8%). Packaged food category has done well, and Nestle’s performance in the past two quarters was steady (6.5% YoY growth). Maggi, Kitkat and Nescafe (in-home consumption) posted double-digit growth. Exports also bounced back with 9% YoY growth. GM expansion was slower at 54bps YoY (58.1%). Cost control initiatives led to EBITDA growth of 16.5% (HSIE 16%). We expect Nestle’s recovery to be steady, and we maintain our EBITDA estimates. As the increase in Capex has resulted in lower other income, we cut our EPS estimate for CY21/CY22 by 3/3%.
The stock is trading at 60x P/E on CY21 EPS and limits absolute upside in the medium term, making the risk-reward unattractive. We roll forward our target price to Sep-22E EPS and value Nestle at 50x P/E to derive a TP of Rs 14,080. Maintain REDUCE.