Motilal Oswal's research report on Nestle India
Nestlé’s (NEST) CY20 annual report highlights its underlying strengths, which makes it one of the strongest topline growth opportunities in the Indian Consumer universe. Key takeaways are as follows: Barring 2QCY20, where all Consumer companies, especially those with their own manufacturing facilities, faced supply-chain issues due to the sudden COVID-led lockdown, the company reported 10-11% sales growth in three quarters in CY20. This means that for four consecutive years (excluding revival from the CY15 Maggi crisis in CY16) the company reported double-digit, or close to double-digit, sales growth, which is better than peers. Sales growth in CY20 was led by volumes (2.6% volume growth out of 8.1% gross sales growth) and mix, and was broad based with: a) close to eight-year high sales growth in Milk and Nutrition (its largest segment at 46% of sales, which surpassed overall sales growth with 8.8% growth in CY20), b) another year of double-digit (11.8%) growth in Prepared Dishes, and c) healthy (6.7% YoY) sales growth in the Chocolates and Confectionery segment despite being more discretionary and urban trade dependent, both of which were weak for large parts of CY20. Encouragingly, the annual report also states that the company is finally witnessing market share gain in this category.
Outlook
Valuations at 59x CY22E EPS are expensive and offer limited upside from a one-year perspective. We value the company at 60x Mar'23E EPS to arrive at our TP of INR18,300. We maintain our Neutral stance.
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