Home/ Markets / Stock Markets/  Nestle India shares: What should investors do with FMCG major stock post Q4 results?

FMCG major Nestle India Ltd reported an over 65% increase in net profit at 628 crore for the fourth quarter ended December 31, 2022. The company, which follows the January-December financial year, had posted a net profit of 379 crore in the same period a year ago.

“After an industry-leading growth for several quarters, which also witnessed margin pressures, 4Q saw a reversal of trends. Volume growth decelerated to a multi-quarter low at the time when margins climbed-up smartly. Mgmt. attributed part of the volume slowdown to its price hike in Maggi LUP (Rs5 to Rs7) - this also resulted in share loss as competition stuck to existing price point. LT outlook appears to be upbeat as Nestle intends to invest 50 bn on capex," said global brokerage Jefferies.

The management believes share loss due to LUP price hike is temporary and should normalise in the medium term. Focus remains on rural distribution expansion; innovation should also pick-up after a lull due to Covid. On the margin side, while edible oil and packaging inputs have corrected, other inputs remain elevated. Nonetheless, mgmt. believes margins have bottomed-out, it added while the brokerage house has Hold rating on the FMCG stock with a target price of 18,100.

“Nestle's strategy of penetration-led volume growth is yielding results. We expect the company to sustain its growth momentum underpinned by continued investments in innovation and premiumisation, expansion of its direct reach with a focus on rural markets, and forays into newer categories. The stock is trading at 65.8x/57.5x CY23E/CY24E EPS. We assume coverage with BUY and value the stock at 67x CY24E EPS, translating to a target price of 22,860," said BOBCaps.

Its gross profit margin contracted by 200 bps YoY in Q4CY22 but expanded sequentially by 220bps QoQ even though prices of key commodities such as cereals, grains and coffee remain at a 10‐year high.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Updated: 17 Feb 2023, 08:42 AM IST
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