Nestle India share price falls 3% on weak Apr-Jun quarter results; should you buy the stock?

Nestle India said it has witnessed a sharp decline in out-of-home consumption due to the lockdown

Nestle India share price fell 3 per cent after rising half a per cent in Wednesday’s volatile trade after the FMCG major’s muted performance in the April-June quarter. Nestle India said it has witnessed a sharp decline in out-of-home consumption due to the lockdown. The company also admitted that in the past three months Nestle India experienced volatility, uncertainty and stresses that it had never imagined before, which led to disruptions across the value chain of the company. “Q2 performance was subdued with 2% sales growth, 4% below our expectations. EBITDA and PAT grew 4% and 11%, driven by cost savings and lower tax outgo. Domestic sales grew 3%, while exports and other operating income declined 9% and 50%, respectively,” Emkay Global Financial Services said in its report.

Nestle India shares were trading 2 per cent down at Rs 16,795.4 apiece in comparison, BSE FMCG index was up 0.31 per cent in noon deals. While the benchmark index BSE Sensex was down 0.12 per cent. Nestle India quoted a 52-week high of Rs 18,301 in April this year. Emkay Global Financial Services has given a sell rating to it with a downside of nearly 10 per cent at a 12-month price target of Rs 15,600.

Even as Nestle India experienced a fall in demand in all out-of-home consumption channels, its in-home consumption boosted sales of Everyday dairy whitener, milk other milk-based products and Nescafe. “We reiterate our ADD rating on the stock as it provides high growth resilience in the current environment due to the nature of its portfolio and strong pedigree and distribution strength.” Yes Securities said in a research report. It has pegged a target price of Rs Rs 18,157 apiece, an upside of 6 per cent.

On the back of COVID-19 induced lockdown, which led to production disruption across company’s factories, the sales numbers were below Street’s estimates. Brokerage firm Motilal Oswal Financial Services is ‘neutral’ on the stock with a 2 per cent downside. It has predicted a target of Rs 16,700 apiece. “Nestlé India’s revenues for the quarter disappointed, weighed by ephemeral lockdown issues, which impacted manufacturing,” it said.

However, Nestle India’s Maggi witnessed solid growth towards the end of the quarter after initial supply constraints. The company has also accelerated its digital engagements across key parts of its portfolio, putting out innovative campaigns to engage the consumers.