Hold Nestle India; target of Rs 15,122: Prabhudas Lilladher

Prabhudas Lilladher's research report on Nestle India

We are upgrading NEST to HOLD from reduce given 1) resilient performance 2) growth visibility given Rs26bn investment program 3) sustained performance in key brands like Maggi, Kitkat, Munch, Nescafe 4) 80% dividend payout and 100%+ FCF conversion and 15% stock correction from the peak. 3Q results were below expectations on delayed Diwali and slow pick up in OOH business even as factories and supply chain returned to normalcy and in-home consumption increased which enabled double digit growth in key brands. We expect NEST to invest incrementally in nutrition business in line with increased focus of the parent in wellness and Nutrition segment. We believe Rs26bn fresh investment is positive and will push growth given capacity constraints in a few lines including Maggi.

Outlook

Input costs are mixed as milk price reduction will be partly neutralized by higher Palmoil prices. We expect EPS to grow 12.5% in CY20 and at 11.7% CAGR over CY20-22E. we value the stock at 50xMArch23 and arrive at target price of Rs15122 (Rs14496 earlier at 50xDec22 EPS). Upgrade to Hold.

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