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Dolat Capital Report
Nestle India Ltd.'s Q2 FY25 results were below our estimates. The domestic revenue grew by 1.2% YoY, while exports grew by 3.1% YoY. Revenue increased by 9.7% on a five-year compound annual growth rate basis.
Due to inflationary commodity prices, gross margin expanded by a mere 10 basis points YoY to 56.6%. Coffee, cocoa, cereals and edible oils saw high inflation, while milk and packaging prices remained fairly stable. We believe raw material prices would pressurize gross margin, in the near term.
We reduce our FY25/26E EPS estimates by 6.9/6.8% to Rs 34.0/38.6 to factor in Q2 performance and introduce FY27E EPS at Rs 44.1.
Although we believe Nestle's growth rate and profitability will remain high in the long run (given strong leadership and unique positioning in most categories), the company may also witness near-term demand and inflationary headwinds.
That being said, we maintain our ‘Reduce' rating with a target price of Rs 2,558 (Rs 2,691 earlier) valuing the stock at 58 times FY27E earnings per share.
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