Nestle India Q4 Results Review - Robust Performance In Challenging Environment: Prabhudas Lilladher

Prabhudas Lilladher Report

We tweak CY24/25 earnings per share estimates of Nestle India Ltd. by -0.3%/-1.6% as we factor in higher margins but slightly slower growth rate in prepared dishes segment following rising competition from regional and smaller players in Instant Noodles segment. Q4 FY23 sales missed estimates as expected pick up did not materialise in festival season (despite Diwali being in Q4 CY23).

Nestle India continues to report broad based growth across segments, markets (metros, tier-I-VI cities and rural markets) and channels (modern trade, out-of-home and e-commerce). Expansion plans are on track with Rs 13.7 billion capex in CY23 and land allotment for 10th unit in Odisha.

Long term drivers remain intact, led by-

1. sustained expansion in rural reach (~20-25% of sales),

2. healthy innovation pipeline (Maggi Professional’s plant based range in Q4 FY23, Masala Millet, KitKat premium portfolio in Q3 FY23),

3. huge scope of growth in coffee, RTD and Chocolates and

4. higher growth in channels like e-Com and MT and

5. strong traction in pet care segment.

We believe most of the gains from soft raw material has been derived and incremental margin expansion will come at a tepid pace as shortfall in production is likely to keep prices of edible oils, coffee, sugar, spices and wheat firm in the near to medium term.

We factor in Ebitda margin expansion of 50bps over CY23- 25 and estimate 10.6% profit after tax compound annual growth rate.

We remain constructive in long term, however expect back ended returns given rich valuations of 64.8 times CY25 EPS. Maintain ‘Accumulate’.

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