Nestle India Q2 results: Brokerages retain diverse views; what to expect stock going ahead

Shares of Nestle India recovered from the previous session’s losses as they rose over a per cent in intraday trade on Friday (July 28) in a weak market.

The stock fell over 2 per cent on Thursday after the company reported its June quarter scorecard. Nestle India on Thursday reported a 36.8 per cent jump in June quarter (Q2CY23) profit. Standalone profit grew to ₹693.3 crore for the three months ended 30 June from ₹510 crore in the year-ago period.

Revenue from operations was up 15 per cent to ₹4,658 crore with domestic sales up by 14.6 per cent year-on-year. Ebitda grew by 25.4 per cent year-on-year; margins expanded by 186 bps year-on-year.

Read more: Nestle India June qtr profit up 36.8%

Should you buy the stock?

After Nestle’s June-quarter numbers, brokerage firms came out with highly diverse views. A majority of them maintained their earlier views. Some recommended buying and accumulating the stock while some advised reducing it. 

We have collated views of five brokerage firms. Take a look:

Nuvama Wealth Management

The brokerage firm has a buy call on the stock with a target price of ₹25,810.

"Nestlé’s Q2CY23 revenue grew 15.4 per cent YoY (in-line with our/Street’s estimates), while EBITDA and PAT grew 25 per cent and 35 per cent respectively – both ahead of our and Street’s estimates. This is the fifth consecutive quarter of double-digit growth across all product groups – did well in both urban and rural (aided by proactive steps)," Nuvama observed.

"We roll forward to Q2CY25E, yielding a revised target price of ₹25,810 (earlier ₹24,965). Nestle continues to be one of our top picks," Nuvama said.

ICICI Securities

The brokerage firm maintained an 'add' call on the stock with a target price of ₹24,500.

"Nestle’s revenue growth of 15 per cent YoY in Q2CY23 was largely in line with our estimates. Double-digit growth across segments for the fifth consecutive quarter was driven by (1) deeper distribution expansion in lower-tier towns and villages, (2) strong performance in mega and metro cities, and (3) a portfolio which is better insulated from an overall market slowdown," ICICI Securities said.

The brokerage firm observed that the acceleration of the innovation engine should help in maintaining the growth trajectory.

"Gross margins were up 80bps QoQ as prices of most of the raw materials were stable, and we expect a correction in milk prices to provide higher resources for ad-spends and innovations to drive growth. We continue to like Nestle’s incremental focus to drive the 'rurban' growth. In our opinion, Nestle is likely to witness industry-leading sales-driven growth as they have plans to aggressively expand their distribution," said the brokerage firm.

The brokerage firm said its earnings estimates are largely unchanged CY23E-24E, modelling revenue, EBITDA and PAT CAGR of 13 per cent, 20 per cent and 22 per cent, respectively over CY22-24E. Key risks are consumption slowdown linked to economic performance.

Kotak Institutional Equities

The brokerage firm has an ‘add’ call on the stock. It raised the target price to ₹23,500 from ₹22,250 earlier.

“We tweak our revenue/margin forecasts and reduce depreciation based on the first half of actuals, leading to 1-2 per cent EPS upgrades,” said Kotak.

Motilal Oswal Financial Services

The brokerage firm has a neutral view on the stock with a target price of ₹22,465.

Motilal Oswal pointed out that Nestle has a strong position in the domestic food market with an innovative product portfolio. They are focused on expanding out-of-home consumption and reaching rural markets, driving sustained double-digit earnings growth.

"Through substantial investments in capacity enhancement, brand support, and R&D initiatives, Nestle is well-positioned to capitalize on the vast opportunities in India's packaged foods segment, ensuring promising long-term revenue and earnings prospects," Motilal Oswal said.

"Nestle's valuation at 61.9 times FY25E P/E is expensive and does not offer any significant upside from a one-year perspective. We value the company at 60 times FY25E EPS to arrive at our target price of ₹22,465," said the brokerage firm.

HDFC Securities

The brokerage firm maintained a 'reduce' call on the stock with a target price of ₹19,500.

“Nestle continues to focus on distribution strengthening, category expansion and capacity building. We remain positive on OOH (out-of-home) products and sustain growth for in-home products. We maintain our EPS estimates. We value Nestle at 52 times P/E on Jun-25E EPS to derive a target price of ₹19,500. With a rich valuation, the absolute upside is limited in the medium term,” said HDFC Securities.

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Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.