EUR 120.00 For Business Accounts Only

MOSL: NESTLÉ INDIA (Neutral)-Healthy sales; material cost concerns persist

NESTLÉ INDIA: Healthy sales; material cost concerns persist

(NEST IN, Mkt Cap USD24.8b, CMP INR19378, TP INR19100, 1% Downside, Neutral)

 

• Nestlé India (NEST) reported sales in line with our estimates. Growth of 9.6% in 3QCY21 on a base of 10.1% in 3QCY20 indicates a healthy demand trend.
• In a welcome new disclosure, the quarterly press release now has commentary on segmental growth, and growth for the quarter seems to be broad based across the four key segments.    
• On a high EBITDA margin base, operating profit and PAT growth came in tepid at 5.9% and 3.2%, respectively, especially as material cost inflation led to the lowest gross margin in 17 quarters in 3QCY21. The press release indicated commodity costs pressures are likely to persist.
• Valuations at 60.8x CY23E EPS do not leave any room for any upside from a one-year perspective. We maintain our Neutral stance.

 Sales in-line; margins better than expected

• NEST reported net sales growth of 9.6% YoY to INR38.8b (in-line). Domestic sales grew 10.1% YoY, driven by high-single-digit volume and mix growth; export sales grew 1.3% YoY during the quarter. We peg volume growth for the quarter at ~8%.
• EBITDA / PBT / Adjusted PAT grew 5.9%/4.6%/3.2% YoY to INR9.5b/INR8.4b/INR6.2b (v/s our estimate of INR9.1b/INR7.8b/INR5.8b).
• Gross margins contracted 240bp YoY to 55.7% on higher commodity prices, particularly edible oil and packaging materials, partly offset by better realizations.