PremiumMUMBAI: Shares of Nestle India Ltd tumbled 4.7% on Wednesday even after reporting a 13.6% increase in net profit to ₹525.4 crore for the quarter ended March. However, analysts are neutral on the firm’s resilience during these testing times due to its product mix.
At 1:30 pm, shares of the fast moving consumer goods (FMCG) company traded at ₹16,690, down 4.4% from its previous close, while the benchmark index, Sensex, gained 2.3% to 32,081.18.
The stock’s significant run up, a rise of 61.9% in the past one year, has driven valuations higher. The market, however, has fallen nearly 14% during the same period. Analysts also said the firm's packaged food segment in India offers many growth opportunities.
However, the stock may be a tad overpriced. “Current valuations of 67times CY2021E EPS and 56.5times CY2022E EPS appear to be completely factoring in the upside for the next one year. We value the company at 60 times March 2022E EPS to arrive at a target price of ₹16,355," said Motilal Oswal Financial Services Ltd, which has a neutral outlook for the stock.
Nestle’s revenues grew 10.8% year-on-year (YoY). However, margins slipped in Q4 due to rise in raw material prices. Compression in gross margin was due to higher commodity prices, particularly milk and its derivatives. Along with this, higher employee cost affected Ebitda (earnings before interest, depreciation and taxation) margins. Employee cost rose by 19% YoY and 11% QoQ. Ebitda margin for the March quarter was at 24% against 23% in Q3 and 25.2% in the March quarter last fiscal.
However, the numbers were still higher than analysts estimates, despite the covid-19-related supply chain issues. “Nestle’s performance in 1QCY20 was ahead of estimates as the company continued its strong growth despite the disruption caused by covid-19," said HDFC Securities Ltd in a note to clients.
"Most players faced supply chain and channel liquidity issues during the last 10-15 days of March. Hence, domestic revenue growth of 11% YoY reflects that Nestle’s performance pre-covid was strong," added HDFC Securities, which too is not upbeat about the Nestle stock, after pricing in most positives.
The company remained resilient in the first quarter as the numbers indicate and delivered volume and mix-led growth. The company's popular brands such as Maggi, KitKat and Nestle Munch delivered strong performances, said Suresh Narayanan, chairman and managing director (MD), Nestle India said.
