Rating: neutral; Nestlé India: High capex to boost growth

Company recorded growth momentum in prepared dishes

Nestle, Nestle India, Nestle India profit, Nestle profit, Industry
Nestle reported net sales growth of 13.8% y-o-y to Rs 4,260 crore (in-line), led by improved volume and mix.

NESTle declared an in-line set of results; however, the tonnage dip in Q4CY22compared to preceding quarters indicate that the high inflation is likely to curb volume growth in the near-term. The company is planning a capex of Rs 5,000 crore over the next three years, which is expected to boost volume growth, especially in prepared dishes (Maggi) and chocolates and confectionary over the medium term. Valuations of 56xCY24 EPS fully capture the stock’s upside potential over the next year. We reiterate our Neutral stance on the stock.

Results in line with estimates

Nestle reported net sales growth of 13.8% y-o-y to Rs 4,260 crore (in-line), led by improved volume and mix. Domestic sales grew 14.1% y-o-y. Export sales grew 17.1% y-o-y to Rs 170 crore. Out of interest (OOI) decreased 29% y-o-y to Rs 235m. Ebitda grew 14.8% y-o-y  to Rs 980 crore (in-line). PBT grew 18.3% y-o-y to Rs 860 crore. Adj. PAT grew 10.2% y-o-y to Rs 630 crore (in-line). Gross margin declined ~210bp y-o-y to 54.9% (est. 55.1%). The Board has recommended a final dividend of Rs 75.  

Category performance

Prepared Dishes and Cooking Aids: The company recorded strong growth momentum, led by a healthy balance of product mix, pricing, and volume growth in Maggi Noodles and Maggi Masala-ae-Magic.

Milk products and nutrition: Milkmaid and Ready-to-Drink registered strong growth. 

Confectionery gained market share and delivered robust growth, driven by Kitkat and Munch. 

Beverages: Nescafe Classic, Nescafe Sunrise, and Nescafe Gold registered double-digit growth. Nescafe RTD and ‘out of home’ also delivered strong double-digit growth.

The long-term narrative for revenue and earnings growth is highly attractive. The packaged foods segment offers immense growth opportunities in India. This is particularly true for a company such as NEST, which has a strong pedigree and distribution strength. The successful implementation of its volume-led growth strategy in recent years provides confidence in execution as well. However, even as some major input prices have started to soften, NEST continues to face commodity cost headwinds. 

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 20-02-2023 at 03:10 IST
Exit mobile version