ICICI Securities recommended hold rating on Nestle India with a target price of Rs 17,500 in its research report dated May 28, 2020.
ICICI Securities research report on Nestle India
CY2019 performance showcased Nestlé’s bias for action and continued benefits of "strengthening the core" actions taken by Suresh Narayanan, CMD. Notable focus areas / enablers are – (1) cluster-based approach (drive penetration), (2) premiumisation through innovations (3.4% contribution to domestic sales), (3) marked improvement in sales and merchandising and (4) a sharp turnaround in Chocolates (segment revenue grew 17% with 16% volume growth). Although 7% volume growth in CY2019 was skewed towards Chocolates and Prepared dishes, we expect FY20 performance to be broad based – infant foods (turnaround in South India), beverages and chocolates (more in-home consumption, indulgences) and prepared dishes (consumers spending more time at home). Deflation in dairy prices in CY20 provides another leg to earnings growth.
Outlook
Our relative positive view on Nestlé’s financial performance is intact; HOLD reflects the requirement of lower multiples to turn more constructive.
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