Maintain ‘buy’ on Nestle, firm poised for strong growth: Jefferies

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Published: November 24, 2015 12:16:12 AM

We maintain ‘buy’ on Nestle India but cut our revenue and earnings forecast by c.5-10% to factor in year-to-date performance and the prolonged market weakness.

We maintain ‘buy’ on Nestle India but cut our revenue and earnings forecast by c.5-10% to factor in year-to-date performance and the prolonged market weakness. We roll forward our DCF-based target price and now value the stock at Rs 7,020 (implied 40x CY17e EPS).

Management of Nestle outlined key priorities for the firm at its analyst meet. With sharp focus on the urbanconsumer, much emphasis was laid on innovation and volume-led growth.While the path to recovery could be challenging, we believe Nestle is poised for strong growth led by a renewed innovation drive and revival in urbanconsumption.

At the recent analyst meet, the management of Nestle outlined immediate priorities as the firm emerges out of the Maggi issue. While admitting the challenges involved, the management seemed confident of getting back on the recovery path. With single-minded focus on the urban consumer, Nestle plans to revamp its portfolio and distribution network. Emphasis on volume-led growth and innovation was encouraging. Maggi was re-launched on 9th Nov ’15 after the Bombay high court set aside the ban.

The product has been received well and has reached 0.12mn outlets (of the c.3.9mn) so far. However, some issues are yet to be resolved – 1) seven states are yet to lift the ban,  2) R640 crore class action suit with the NCDRD, the test results of which are expected end-Nov and 3) the FSSAI has appealed to the Supreme Court questioning the lower court order.

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