IGI Logo

Balancing growth and inflation; maintained strong performance

Nestle India (NEST) continues to report mid to high teens (14-18%) revenue growth driven by broad based performance across all segments. Impact of price hike on LUPs (15-20% salience) is moderately concerning. However, early-signs of clawing back volume market share in the main-stream and premium segments is comforting. NPDs are likely to be slowed down for next one to two quarter, as incremental investments will be channelized towards defending the core (recover from inflation led market share impact on LUPs). We like NEST’s incremental focus to drive RURBAN growth by (1) strengthening distribution reach (2) scaling up HAAT activities (3) improving in-shop visibility (4) new pack launches; likely launch of affordable packs in Milk and Nutrition portfolio (during current year) to tap latent demand. We maintain our long-term investment thesis of NEST’s likely outperformance compared to peers

4QCY22 good revenue performance (+14% YoY) has benefits of (1) strong recovery in large metro cities along with continued deeper expansion in lower tier towns and villages and (2) a portfolio which is better insulated to overall market slowdown (rurban distribution expansion is helping). While margin pressure continues, some cool-off is seen in select commodities of edible oils and packaging materials. We believe the street will continue to appreciate volume-based outperformance which Nestle is witnessing. Maintain ADD with a DCF-based TP of Rs22,000

* Good broad-based top-line: Revenue was up 14% YoY with similar domestic sales growth trajectory. This performance was driven by volume and price-led broad-based growth – all segments reported double-digit top-line growth. Exports sales grew 17% YoY (above pre-covid level) but growth momentum slowed down (to 0.3% 3Y CAGR) vs Q3CY22 (9% 3Y CAGR). In export market NEST continues to proliferate Indian product portfolio in new markets by enhancing distribution reach. It highlighted that (1) Growth has been strong in large metros and mega cities and continued to be robust in small towns and rural markets, (2) OOH saw good growth led by several initiatives and (3) MT also witnessed strong growth.

In terms of segmental performance (CY22), (1) prepared dishes and cooking aid continues to report strong growth driven by healthy product mix; pricing and volume growth in Maggi Noodles and Maggi Masala-ae-Magic (2) milk products and nutrition performed well; Milkmaid and RTD registered strong growth while milk products performance was impacted due to significant inflation in milk price (3) confectionary gained market share and delivered robust growth in Kitkat and Munch, and (4) Beverages saw good double-digit growth in coffee across.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer http://www.icicisecurities.com/AboutUs/?ReportID=10445 

 SEBI Registration number is INZ000183631

Above views are of the author and not of the website kindly read disclaimer