Nestle India hits 10-month high as company eyes volume-led double digit growth
Mumbai: Shares of Nestle India Ltd rose more than 6% in intraday trading, hitting a 10-month high on Monday after its management said, in an analysts meet, that the company is eying double digit growth led by volume and not price hikes.
Nestle shares closed up 6.60% on the BSE on Monday at Rs 7030.05.
The company, which had run into trouble after its top product Maggi noodles was banned for six months in 2015, has launched 43 products from January 2016 to May 2017.
Analysts are positive on the stock as Nestle India said it is strengthening positioning of existing brands and enhancing penetration. According to Edelweiss Securities, Nestle will emerge as one of the key beneficiaries of a pick up in urban demand. “Nestle’s focus on innovation, market share, premiumization and increased penetration will propel volume-led growth,” said Edelweiss Securities Ltd in a note on 28 August.
Nestle’s launches have accounted for one-fourth of revenue growth. “Of 43 new launches, 36 were in the value-up or mainstream category which will aid premiumization,” added the brokerage firm.
Ambit Capital Pvt. Ltd, however, feels that the management’s strategy to continue the launch momentum of categories under evaluation mode is inadequate. “We believe there are several gaps in delivering these strategies,” Ambit said in a note on 28 August.
It added that though Nestle seemed proud of the fact that they had launched 43 products in last one year, its entry into major categories remains elusive and the products were only new variants or flavours which do not move the needle.
According to Ambit, growth of 6% year-on-year in advertising and promotions (A&P) spend belies Nestle’s claims of accelerating its new launch engine. “Nestle is trading at 46 times 2018 price to earnings (PE), at a 24% premium to the FMCG sector and a 6% discount to its last five years’ average. Nestle does deserve the premium given its long and strong growth ramp up in underpenetrated categories, strong margins and premium positioning. But current multiples appear rich given limited visibility on the ability of new launches to boost growth,” Ambit added.