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What should investors do with Nestle India post-Q2 results: buy, sell or hold?

What should investors do with Nestle India post-Q2 results: buy, sell or hold?
July 29
18:04 2021

Nestle India has reported a 10.7 percent year-on-year growth in profit in the June 2021 quarter to Rs 538.5 crore from Rs 486.6 crore in the year-ago period

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Nestle India share price was down nearly a percent in the early trade on July 29, a day after the food and beverages major reported a 10.7 percent year-on-year growth in profit in the June 2021 quarter to Rs 538.5 crore from Rs 486.6 crore in the year-ago period.

The company, which follows January-December financial year, said revenue from operations grew 14 percent to Rs 3,476.7 crore from the corresponding quarter of the last fiscal.

Also read: Nestle Q2 results: Profit jumps 10.7% to Rs 538.5 crore; company to sell entire stake in Sahyadri Agro

Here is what brokerages have to say about the stock and the company post the June quarter earnings:

Credit Suisse | Rating: Neutral | Target: Rs 18,350

The broking house has kept “neutral” rating on the stock due to stretched valuations and limited room for a positive surprise. However, it remains positive on long-term prospects, while cut CY21-23 earnings by 3 percent.

UBS | Rating: Buy | Target: Rs 21,500

UBS maintained “buy” rating on the stock as the key categories drive growth, while e-commerce accelerates. The Q2CY21 domestic sales were up 13.7 percent YoY. The new product contribution is growing and expansion is on track.

JPMorgan | Rating: Neutral | Target: 17,700

The broking firm has stayed neutral on the stock due to a limited scope for earnings upgrades. The scope for higher dividend payout remains.

Morgan Stanley | Rating: Equal-weight | Target: Rs 17,511

The growing revenue contribution from e-commerce and innovations are key positives. However, rising commodity prices leading to 160 bps QoQ dip in gross margin is negative.

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CLSA | Rating: Outperform | Target: Cuts to Rs 18,500 from Rs 19,000

The topline and margin were a miss, while Q2 normalcy should help the recovery. The Q2 was weaker than expected, with sales, EBITDA and profit growth of 14/10/5 percent YoY.

The drop in sales’ two-year CAGR from 10 percent to 8 percent is unsatisfactory, while the company is expected to leverage penetration opportunities. CLSA has cut earnings estimates by 3 percent.

Prabhudas Lilladher | Rating: Accumulate | Target: Rs 19,290

We estimate 13.7 percent PAT CAGR over CY20-23 and have marginally tweaked CY22/CY23 EPS by -0.1 percent/0.2 percent on account of higher interest and lower depreciation and other income.

Long term is intact but expect back-ended returns, given rich valuations of 60.3xJune23 EPS.

Motilal Oswal | Rating: Neutral | Target: Rs 18,600

The long-term narrative for Nestle’s revenue and earnings growth are highly attractive.

The packaged foods segment in India offers immense growth opportunities. This is particularly true for a company like Nestle, with a strong pedigree and distribution strength. Successful implementation of its volume-led growth strategy in recent years provides confidence on execution as well.

At 9.17 am, Nestle India was quoting at Rs 17,896.25, down Rs 116.35, or 0.65 percent, on the BSE.

The share touched a 52-week high of Rs 18,821.45 on December 24, 2020, and a 52-week low of Rs 15,104.25 on September 22, 2020. It is trading 4.92 percent below its 52-week high and 18.48 percent above its 52-week low.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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