Nestle India Q4 show fails to impress. Should you buy, sell or hold?

Brokerages have had a mixed reaction after Nestle India reported a 4.4 percent year-on-year rise in net profit at Rs 655.6 crore for the December quarter

The FMCG major’s revenue from operations was up 8.05 percent to Rs 4,600 crore, which was below estimates. Motilal Oswal had projected growth of 11 percent for the fourth quarter.

Nestle India follows January to December financial year.

Domestic sales grew 8.9 percent on the back of pricing and mix growth, with strong momentum in e-commerce and out-of-home channels. The quarter was marked by an increase in brand investments across all product groups.

In 2023, total sales grew over 13.3 percent and the company crossed the Rs 19,000-crore mark.

The revenue growth was led by product price hikes, noted Jefferies. The gross margin expanded to a 12-quarter high to 58.6 percent, which was 370 basis points higher from the year-ago period.

One basis point is one-hundredth of a percentage point.

Jefferies kept the "hold" call on the stock with a target price of Rs 2,475 apiece.

The costs of maize, sugar, oilseeds and spices were hit by uneven rainfall. Conversely, prices of milk, wheat, and rice remained stable. Motilal Oswal modeled 57 percent gross margin for FY25/FY26, rebounding after touching 54 percent in CY22.

Nestle India also announced the slump sale of Nestle Business Services (NBS) for Rs 79.8 crore.

“This shall leverage the fact that NBS can give the Nestlé parent a global footprint and while being at arm’s length give Nestlé India scale, efficiencies and technology benefits in the long term. We do not see any connection to change in royalty due to this,” Nuvama Institutional Equities said.

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Morgan Stanley said the strong pricing and lower input costs drove the margins. The double-digit growth in milk products and nutrition business is positive. The brokerage, however, maintained its “underweight” call on the Maggi-maker, with a target price of Rs 1,981.

Nestle has been building its blocks around its ‘RURBAN’ strategy and driving its distribution reach in the untapped markets, leading to broad-based growth across brands for the last few years, Motilal Oswal said.

The brokerage reiterated its neutral rating with a target price of Rs 2,400 (based on 60x P/E Dec’25E) due to expensive valuations.

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