Top Conviction Ideas : Buy Nestle India Ltd for Target Rs. 1,410 - Axis Securities Ltd
Recommendation Rationale
* Stellar Performance: Nestlé posted a healthy ~11% YoY revenue increase, supported by robust double-digit growth in confectionery, beverages, and prepared dishes, alongside solid volume traction in MAGGI noodles. The Milk and Nutrition portfolio remained mixed. EBITDA rose ~6% YoY, though margins compressed by 105 bps to 22%, weighed down by a 216-bps decline in gross margins amid higher input costs and increased operational expenses from capacity expansion.
* GST Reforms – A Structural Positive: The GST rate reduction to 5% on packaged foods, dairy products, noodles, pasta, sauces, and ketchup is expected to enhance affordability and stimulate discretionary demand. Nestlé, with its wide presence in these categories, stands to be a key beneficiary, particularly in noodles and cooking aids.
* Outlook: Nestlé remains well-positioned for long-term growth, underpinned by its dominant domestic franchise, continued innovation, distribution-led market penetration, capacity expansion, and increasing out-of-home consumption. While volatile commodity prices, especially in coffee, cocoa, and edible oils, may keep near-term margins under pressure, the expected moderation in milk prices alongside its strong pricing power and efficiency initiatives should partly offset cost headwinds.
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