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Nestle’s revenue growth of 21% YoY (highest ever in last decade on LFL basis) was above our (and consensus) estimates driven by price hikes. Maintaining volume growth trajectory coupled with mix improvement despite price hikes is impressive (no surprises though). This performance does have benefits of (1) continued deeper expansion in lower tier towns and villages and (2) a portfolio which is better insulated to overall market slowdown. Gross margins (-140bps YoY) remain under pressure likely due to higher milk and soft commodity prices. We like NEST’s incremental focus to drive RURBAN growth by (1) strengthening distribution reach, (2) scaling up HAAT activities, and (3) improving in-shop visibility. In our opinion, Nestle is likely to witness industry-leading sales driven growth as they have plans to aggressively expand their distribution (link). We maintain our long-term investment thesis of NEST’s likely outperformance compared to peers (link). Further, we believe the street will continue to appreciate volume-based outperformance which Nestle is witnessing. Maintain ADD with a DCF-based revised TP of Rs23,000.

* Strong double-digit growth trajectory further accelerating: Revenue grew by 21% YoY (highest ever quarterly growth in last decade) with similar domestic sales growth trajectory. The performance was driven by volume and price-led broad-based
growth – all segments reported double-digit top-line growth. Exports sales grew 25% YoY. It highlighted that (1) Rurban continued its growth trajectory with strong momentum in metro and mega cities, (2) Rural witnessed volume led growth driven
by distribution expansion, (3) OOH continued to accelerate led by several initiatives and (4) MT witnessed broad based growth driven by outlet expansion and e- commerce witness sed strong growth driven by quick commerce. In terms of segmental performance, (1) prepared dishes and cooking aid witnessed strong growth across portfolio, (2) milk products and nutrition reported strong double- digit growth despite commodity pressure; Milkmaid registered strong growth while GERBER Cereals and CEREGROW Grain Selection performed well, (3) confectionary delivered robust growth driven by KITKAT and MUNCH, (4) Beverages witnessed good growth driven by strong growth in NESCAFE RTD and OOH
portfolio, (5) Pet foods continues to build its momentum.

* Raw material pressure and cost inflation continue: Gross margin contracted 140bps YoY to 53.6% (-100bps QoQ). Management highlighted that (1) fresh milk, fuel and coffee remain inflationary, while (2) there are early signs of softening in
edible oils, wheat and packaging materials. We note that management had highlighted that it is looking to drive cost-control measures to partly offset inflationary impact. EBITDA margin was flat YoY at 22.6% led by operating leverage benefit.
Adjusted net profit came in at Rs7.4bn (+25% YoY).

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