Accumulate Nestle India Ltd For Target Rs.1,526 Prabhudas Liladhar Capital Ltd
Strong volume growth continues, Super El Nino a key risk
NEST 2Q27 results were largely in line, supported by
(1) sustained strong volume growth momentum in 2QFY27
(2) relative stability in gross margins despite elevated RM basket
(3) broad-based growth across Maggi, Chocolates and Beverages. NEST delivered a strong quarter, with revenue and EBITDA growing 20.3% and 30.5% YoY, respectively, while EBITDA margins expanded 187bps, aided by operating leverage and lower employee and raw material costs
However, revenue and EBITDA growth might moderate in 2HFY27 as the base normalizes. We expect higher inflation to start hurting demand in 3Q27, however our estimates do not factor in any potential demand impact from an El Nino event. We see limited headroom for further margin expansion, given the potential volatility in Sugar, cocoa and palm oil prices amid the risk of super El Nino globally. We estimate an EPS CAGR of 16.4% over FY26–29E. At the current market price, the stock trades at 51.3/45.7x FY28E/FY29E EPS. While we remain constructive on the company's operational outlook, rich valuations will provide only steady returns in medium term. We maintain our DCF-based target price of Rs1,526 (earlier Rs 1,514).
Sales increased 20.3%, Adj PAT up 36.6% YoY: Revenues grew by 20.3% YoY to Rs67.9bn (PLe: Rs67.15bn) with domestic/ export sales up by 20.4%/ 22.0%. Gross margins expanded by 258bps YoY to 56.9% (Ple: 56.5%). EBITDA grew by 30.5% YoY to Rs16.2bn (PLe:Rs 16.39bn); Margins expanded by 187bps YoY to 23.8% (PLe:24.4%). Adjusted PAT grew by 36.6% YoY to Rs10.3bn (PLe:Rs 10.44bn)
Segment-wise Performance: Beverages posted strong volume led growth led by strong coffee performance & premiumization, Prepared Dishes and Cooking Aids- registered strong growth led by expanding rural reach and continued innovation, Confectionaryreported strong volume led double-digit growth led by premiumization & e-comm with KITKAT continue to see strong traction. Milk Products- Broad based growth led by focus on consumer-oriented portfolio refinement & superior execution.
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SEBI Registration number is INH000000933
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