EUR 120.00 For Business Accounts Only

MOSL: NESTLE INDIA (Neutral)- Sales outlook healthy, milk inflation to curtail margin expansion

Nestle India: Sales outlook healthy, milk inflation to curtail margin expansion

(NEST IN, Mkt Cap USD22.2b, CMP INR16418, TP INR15550, 5% Downside, Neutral)

 

Miss on EBITDA/PAT

• Double-digit domestic sales growth, while lower than forecast, is very healthy in the current environment.
• Higher milk & milk derivative costs are likely to weigh on near-term earnings growth, but longer-term prospects remain robust.
• Valuations of 58.1x/48.6x CY21/22E EPS fully factor in upside from one-year perspective. Maintain Neutral. 

Decent set of numbers, margins lower than expectations

• NEST reported net sales growth of 8.7% YoY to INR31.5b (our estimate: INR32.7b). Domestic sales grew 10% YoY, largely driven by volume/mix. Export sales declined 9.7% YoY due to lower coffee exports to Turkey.
• EBITDA increased 9.6% YoY to INR6.7b (our estimate: INR7.7b), PBT grew by 4.2% YoY to INR6.1b (our estimate: INR7.2b) and adj. PAT was up 15.6% YoY to INR4.7b (our estimate: INR5.4b).
• Gross margin shrank 220bp YoY to 56.8% due to higher commodity cost, particularly milk and its derivatives.  
• Higher staff costs (+60bp YoY to 10.2%) and lower other expenses (-290bp YoY to 25.2%) led to EBITDA margin expansion of 20bp YoY to 21.4%.