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Below are views on Nestle India – 1QCY21 Result Update. By Himanshu Nayyar, Lead Analyst - Institutional Equities, YES SECURITIES

Nestle India – 1QCY21 Result Update – (Rating: ADD, TP: Rs 18,000, Upside: 5.3%)

Valuation and view – With another resilient performance from Nestle despite a strong base, our conviction on Nestle India as one of our top picks in the staples space increases further. Our key investment thesis of sustained double-digit domestic growth and premiumization potential of its categories, opportunities for further deepening distribution especially in rural markets and aggression on new launches and marketing spends remains intact. The stock is currently trading at 57x CY22E earnings and we reiterate our ADD rating with a PT of Rs 18,000 based on 60x CY22E earnings.

Results marginally ahead of expectations - Nestle numbers were marginally ahead  of expectations with sales/EBITDA/PAT growth of 8.6%/17.2%/14.6% vs our expectation of 9.8%/14.6%/14.2% respectively with a much better than expected margin performance offsetting soft export revenues.

Management commentary – Sales growth was broad-based driven by combination of volume and mix with higher in home consumption driving double-digit growth, E-commerce channel grew by 66% and contributed 3.8% to domestic sales, the company alluded to recent sharp inflationary trends in commodity and packaging materials as a key risk, growth led by Maggi, Kitkat, Nescafe, Milkmaid and Masala-ae-Magic.

Margins - Gross margins improved sharply by 220bps to 58.5% led by lower milk and derivative prices and a superior mix. EBITDA margins improved by 190bps to 25.8% (our expectation of 24.9%) despite a significant step up in marketing spends given controlled employee costs.

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