ECONOMY

Analysts’ Take On Nestle India’s Q2 Results

Brokerages see the double-digit growth in Nestle India Ltd.’s key brands such as Maggi and KitKat as an encouraging sign, and its focus on rural markets to benefit in the coming quarters.

That comes even as the consumer goods maker saw its profit fall sequentially, missing estimates, in the quarter ended June as the second Covid-19 wave hurt demand. Its revenue and operating profit also declined, and margin contracted over the preceding three months.

Shares of Nestle India were trading 0.76% down around 11:40 a.m. on Thursday. Of the 41 analysts tracking the company, 18 maintain a ‘buy’, 17 have a ‘hold’ and six recommend a ‘sell’, according to Bloomberg data. The overall consensus price of analysts tracked by Bloomberg indicated an upside of 1.8%.

Here’s what brokerages have to say about Nestle India’s June-Quarter earnings.

CLSA

  • Maintains ‘outperform’ rating with a 12-month price target of Rs 18,500, a potential upside of 3%.

  • June-quarter numbers weaker than expected as lockdown hindered sales.

  • Strong double-digit growth in key brands like Maggi Noodles, KitKat, Munch a major positive.

  • Improvement in e-commerce sales augurs well for future growth prospects.

  • Nestle India has a relatively high pricing power, that will aid margins.

  • Positive stance on the company based on structural top-line opportunities.

Jefferies

  • Maintains ‘hold’ with a price target Rs 18,000. It has upside target scenario of Rs 23,000 and a downside scenario price target of Rs 11,500.

  • Growth largely led by volume and mix.

  • Strong growth in prepared dishes and confectionary portfolio augurs well for upcoming quarters.

  • Out-of-home portfolio likely to have faced adverse impact due to second Covid wave.

Dolat Analysis and Research

  • Recommends ‘accumulate’ with a target price of Rs 19,078, a potential upside of 6%.

  • June-quarter revenue came in line with estimates.

  • Growth in domestic business driven by volume and mix.

  • Strong acceleration in e-commerce business to trigger sustainable growth.

  • Double-digit growth in key products like Maggi noodles, Maggi sauces, Kitkat and Munch to boost overall sales.

  • New channels ‘telecaller model’ and ‘hyperlocal model’ aided the sales momentum despite second wave.

  • Further plans to invest Rs 2,600 crore over three-four years to help address the fast growing domestic market.

Emkay Global

  • Recommends ‘hold’ with a 12-month target price of Rs 17,200, a potential downside of 4.6%.

  • June-quarter performance muted as higher input prices and overhead costs weighed on operating margins.

  • Two-year sales CAGR remains healthy, but sales have moderated due to lockdown impact.

  • Focus on innovation and distribution yet to drive further improvement in growth.

  • Double-digit growth in volume aided domestic sales.

  • In-home consumption trends led to double-digit growth in noodles, chocolates and sauces segments.

  • Favourable realization and mix have offset the sharp uptick in commodity prices.

IDBI Capital

  • Recommends ‘sell’ with a target price of Rs 15,486, a downside of 14%.

  • June-quarter numbers below expectations.

  • Key brands like Maggi noodles, KitKat and Munch recorded strong double-digit growth.

  • Growth in revenue from e-commerce channel a major positive.

    Key Risks

  • Inflation in oil and packaging material prices.

  • Higher expenses to put pressure on operating profit growth.

Nirmal Bang

  • Recommends ‘accumulate’ with a target price of Rs 17,550, a downside of 2.6%.

  • Growth momentum was slower than expected despite the double-digit sales growth.

  • Distribution expansion and further strengthening in rural markets to help the company deliver strong growth.

  • Remains fairly confident of sustainability of the company’s earnings growth over the next three years.

Nomura

  • Recommends ‘buy’ with a target price of Rs 20,750, an implied upside of 15.1%.

  • Expects Nestle to regain its double-digit two-year sales CAGR in second half of 2021.

  • Sharp focus on volume-led sales growth and expansion of rural reach to drive growth in upcoming quarters.

  • New launches and e-commerce sales augur well for the growth prospects.

  • Fresh capacities from the new capex plan to have a positive impact by the end of the year.

  • Double-digit revenue growth in key products like Maggi noodles, sauces, chocolates and seasonings an encouraging sign.

Prabhudas Lilladher

  • Recommends ‘accumulate’ with a target price of Rs 19,290, an upside of 7%.

  • Continued focus on e-commerce aided growth in the June quarter.

  • Hyperlocal channel growth minimised the impact of the second wave.

  • Focus on rural market and increase in village coverage to trigger long-term growth.

  • Expects Nestle to meet capacity constraints in key segments, including Maggi.

  • Domestic and export sales growth driven by volume and mix.

Systematic Institutional Equities

  • Recommends ‘hold’ with a target price of Rs 16,300, a potential downside of 9.6%.

  • June-quarter results powered by higher volumes on a low base were in line with estimates.

  • Management has effectively captured the e-commerce growth opportunity which now contributes to 6.4% of domestic sales.

  • Expects Nestle’s continued dominance in core categories to continue.

  • New launches have been backed with adequate media spends.

  • Plans to increase rural India focus and expand footprint to trigger sustainable growth.

  • Most of the positives are already built in at the current market price.

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