Accumulate Nestle India; target of Rs 17,364: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on Nestle India with a target price of Rs 17,364 in its research report dated February 27, 2021.

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Prabhudas Lilladher’s research report on Nestle India

Nestle India highlighted its growth strategy based on 1) Innovation and renovation 2) expanding distribution reach 3) cost efficiency program and 4) technology led differentiation. Rural is now an area of focus with targeted increase in village coverage by 33% with 30-40% of relevant products and launching Rural centric products given that Rural and Semi urban markets are growing at 2-2.5x of urban. We believe NEST will continue to pursue innovation led growth given 70% success rate in past 4 years, 4.3% contribution from such products and impressive lineup of 40-50 new innovations/renovations.

Outlook

Nestlé’s plans to start production at Instant Noodles facility in Sanand by end of CY21 (part of Rs26bn expansion over 3 years across Noodles, Chocolates and Coffee) which should ease capacity constraints in highest volume segment for the company. We believe success of new launches and growing salience in rural India can provide an upside to our estimates. We estimate 13% PAT CAGR over CY20-22 and value the stock at Rs17364 based on DCF. Upgrade to Accumulate.

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