Neutral Nestle India Ltd For Target Rs. 22,465- Motilal Oswal Financial Services
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* NEST reported 2QCY23 results that are broadly in line with expectations. It delivered double-digit growth across all products, led by a better mix, healthy volume, and better pricing, along with rapid acceleration in the outof-home (OOH) business during the quarter.
* GP margin expanded 90bp YoY in line with our estimates. Management pointed that costs of edible oils, wheat and packaging materials is in lower range with stable milk cost and softening of fuel prices while Robusta prices are high. The e-commerce channel continued deliver robust growth and contribute 6.5% of 2QCY23 sales.
* We value the stock at 60x Mar’25E EPS to arrive at our TP of INR22,465. We reiterate our Neutral stance on fair valuations.
Broadly in-line result with estimates
* NEST reported net sales growth of 15.1% YoY to INR46.6b (est. INR45.9b), led by healthy balance of pricing, volume, and product mix.
* Domestic sales grew 14.6% YoY. Export sales grew 25.4% YoY to INR2.0b. ? OOI increased 31.4% YoY to INR390m.
* EBITDA grew 25.4% YoY to INR10.6b (est. INR10.3b).
* PBT grew 30% YoY to INR9.4b (est. INR8.9b)
* Adj. PAT grew 30% YoY to INR7.0b (est. INR6.6b).
* Gross margin expanded ~90bp YoY to 54.8% (est. 54.8%).
* EBITDA margin expanded ~190bp YoY to 22.7% (est. 22.4) ? In 1HCY23, Net sales/EBITDA/Adj. PAT grew 18%/22.4%/27.8%.
Category performance
* Prepared Dishes and Cooking Aids: The category delivered double-digit growth, led by MAGGI Noodles and aided by distribution expansion and consumer activations.
* Milk Products and Nutrition: It posted a strong double-digit growth despite commodity pressure. MILKMAID and Peptamen delivered strong growth. New launches are Resource Fibre choice, Everyday Zero added sugar, and MUNCH Breakfast Cereals.
* Confectionery delivered robust growth, driven by KITKAT and MUNCH. ? Beverages: The category delivered double-digit growth, led by NESCAFE Classic, NESCAFE Sunrise, and NESCAFE GOLD for both hot and cold coffee occasions. It launched a cold coffee premix NESCAFE ALL IN 1 FRAPPE. ? Pet Foods: Felix received good response from trade and cat parents.
Key highlights from the management commentary
* It is the 5th consecutive quarter of achieving double-digit growth across brands.
* Out-Of-Home (OOH): It posted a strong performance, led by Kiosk expansion and prioritization of emerging brands.
* E-commerce channel contributes 6.5% of quarterly sales, driven by Quick commerce.
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