Buy Nestle India Ltd; target of Rs 22,395: Sharekhan

In Q3CY2021, Nestle India (Nestle) registered mixed performance with revenues growing by ~10% to Rs. 3,865 crore while PAT grew by 5% to Rs. 617.4 crore (due to a 52 bps decline in OPM and higher interest expenses). Domestic business grew by 10.1%. Organised trade witnessed a recovery in Q3 with strong revenue growth in mid-twenties after a muted second quarter, which was impacted by the second wave of COVID-19. Maggie Noodles, Confectionaries (including Kit-Kat and Munch) and Beverages registered double-digit revenue growth with recovery in the out-of-home sales. The company is focusing on double-digit growth across markets (including urban and rural) by using healthy mix of customised portfolio and enhanced distribution expansion.

Outlook

Nestle is the largest food company with a strong portfolio of brands in the packaged food & beverages space, which will help it achieve good growth at a time when consumers are shifting to trusted brands, rural aspirations are improving, thereby boosting overall penetration. With capacity expansion (commissioned its ninth factory in Sanand, Gujarat) and focus on improving reach in key markets, the company is well-poised to achieve double digit earning growth in the medium term. This along with cheery dividend payout makes it a good pick from a long-term perspective. Thus, we maintain a Buy on the stock with an unchanged price target of Rs. 22,395. The stock has corrected by 6% from its recent high and is currently trading at 55.2x its CY2023E earnings.

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