1. Retain ‘buy’ on Nestle, target Rs 6,950: Nomura

Retain ‘buy’ on Nestle, target Rs 6,950: Nomura

We maintain a ‘buy’ rating on the stock and believe that Maggi noodles should be seen on the shelves soon.The size of the brand is ~Rs 25bn in sales, and contributes to around 25%...

By: | Published: October 20, 2015 12:14 AM

We maintain a ‘buy’ rating on the stock and believe that Maggi noodles should be seen on the shelves soon.The size of the brand is ~Rs 25bn in sales, and contributes to around 25% of the company’s total portfolio in terms of revenues.

This is a positive development towards the re-launch of the noodles, as Maggi can now commence manufacturing and selling its products after the newly manufactured products are cleared by the designated three laboratories. For Q3CY15, we expect a soft quarter, as there will be no sales coming in from Maggi.

We expect a revenue and EBITDA decline of ~19.5% year-on-year. For CY15, we have trimmed our estimates to take out the impact of Maggi for the year, but for CY16, we are building in revenues of Rs 1,800Cr from the sales of Maggi alone.

We have assumed that the product will be launched by the beginning of CY16, but normalized volumes will start 4-5 months after the initial launch.We have always maintained that there would be a short-term impact on sales and profitability of the company for a few quarters, but the company should be able to fix the product and bring it back to the market.

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