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Prabhudas Lilladher Report
We increase CY24/25 earnings per share estimates of Nestle India Ltd. by 1.9%/0.7% and target price to Rs 25471 (Rs 23585 earlier) on rollover, margin beat in Q3 CY23 and double digit domestic sales growth (despite late festival season).
Nestle India continues to report broad based growth across segments, markets (Metros, T1-six cities and rural markets) and channels (modern trade, out-of-home and e-commerce).
Long term growth drivers remain intact, led by-
sustained expansion in rural reach (~20-25% of sales),
healthy innovation pipeline (Masala Millet and KitKat premium portfolio in Q3 CY23),
huge scope of growth in segments like coffee, ready-to-drink and chocolates and
higher growth in channels like e-com and modern trade and
strong traction in nascent pet care segment.
We believe most of the gains from soft raw material has been derived and incremental margin expansion will come at a tepid pace as shortfall in production is likely to keep prices of edible oils, coffee, sugar, spices and wheat firm in the near to medium term.
We expect volume growth to improve as Maggi low unit packs price revision has mostly come in the base and Q4 will also get a boost from late Diwali. Long term growth drivers look intact given significant capex plans of the company.
We factor in Ebida margin expansion of 40 basis points beyond CY23 (23.6% with 140 bps improvement). We introduce CY25 earnings estimate with 12.2% earnings per share compound annual growth rate over CY23-25.
We expect steady returns despite rich valuations of 58.8 times September-25 EPS. Maintain ‘Accumulate'.
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