Accumulate Nestle India Ltd For Target Rs.1,606 - Prabhudas Liladhar Capital Ltd
Strong volume led momentum continues
Quick Pointers
* Strong momentum across Maggi, Beverages and Confectionary
* 5.3/6.1% EPS upgrade with target up to Rs1606
* El Nino led input cost inflation remains a key risk to our call
We raise our FY27/FY28 estimates by 5.3/6.1% and retain Accumulate driven by 1) strong growth momentum with 25% sales growth in 1Q27 2) low base in 1H27 and 3) relative stability in raw material prices and 4) broad based growth in Maggi, Chocolates and Beverages.
Nestlé delivered a strong quarter, reporting 25.2% YoY revenue growth and 39.8% YoY EBITDA growth, with margins expanding 252 bps led by operating leverage from lower staff and raw material costs. We expect sales momentum to remain healthy in 2QFY27, supported by a relatively low base.
However, growth is likely to moderate in 2HFY27 as the base normalizes, although we are not factoring any demand impact or input cost inflation due to potential El Niñoled impact. We believe margins have very limited room for an upside as coffee, cocoa and palmoil might become volatile due to super El Nino globally. We estimate EPS CAGR of 17.8% over FY26–28. The stock currently trades at 60.7x FY28 EPS. We remain positive operationally and raise DCF-based target price to Rs1,606 (Rs1,504 earlier). We expect steady but moderate returns given rich valuations.
Sales increased 25.2%, Adj PAT up 48.9% YoY:
Revenues grew by 25.2% YoY to Rs63.8bn (PLe: Rs60.14bn) with domestic/ export sales up by 25.0%/ 35.6%. Gross margins expanded by 205bps YoY to 57.2% (Ple: 56.0%). EBITDA grew by 39.8% YoY to Rs15.4bn (PLe:Rs 14.01bn); Margins expanded by 253bps YoY to 24.1% (PLe:23.3%). Adjusted PAT grew by 48.9% YoY to Rs9.8bn (PLe:Rs 8.53bn)
Segment-wise Performance:
Robust growth across category – Beverages posted strong double-digit growth led by strong coffee performance & premiumization, Prepared Dishes and Cooking Aids- registered strong double-digit growth led by expanding rural reach and continued innovation, Confectionary- reported strong volume led double-digit growth led by premiumization & e-comm with KITKAT continue to see strong traction. & market share gain. Milk Products – Strong growth led by focus on consumer-oriented portfolio refinement & superior execution.
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SEBI Registration number is INH000000933
