Emkay Global Financial's report on Nestle India
Nestle reported a steady performance in Q1CY21 with domestic sales growing 10% to Rs34.4bn, in line with estimates. Total sales were marginally below expectations due to a 13% drop in exports. EBITDA/PAT grew 15%/14%, missing estimates by 5-7% on higher ad spends and lower other income. Domestic growth has been steady and seems ahead of peers (2-year CAGR of 10%), driven by strong in-home consumption trends. Lockdowns are likely to impact near-term growth, but Nestle categories are likely to be resilient, offering better growth vs. peers. Low input prices have supported gross margin expansion - up 220bps. Management has indicated commodity pressures ahead. However, we believe inflation in key input prices appears manageable and can be largely offset by modest price hikes. Recent lockdowns may impact Q2 and CY21 earnings but are likely to be temporary and should not affect our CY22-23 forecasts.
Outlook
At 56x CY22E EPS, the stock looks fairly valued and offers limited near-term upsides, given the lack of any potential upside to earnings. Retain Hold with a revised TP of Rs16,800, rolling forward to Jun'23E EPS.
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