Maintain buy on Nestle India - TP Rs.4800 - Geojit BNP Paribas Financial Services

- 2QCY12 revenue at Rs.1980 crore is below market expectation. But the company continued to positively surprise on gross margin and EBITDA margin levels. Gross margin increased 410 bps yoy and EBITDA margin rose 220 bps yoy driven by better product mix and higher realizations.

- Adjusted net income increased 17% yoy and ahead of market expectations.

- While overall sales growth momentum was in line with previous quarter, export growth slipped despite the favorable impact of rupee depreciation. Domestic sales increased 13.7% yoy, as in the previous quarter.

- Depreciation costs increased 84% yoy and 28% qoq, indicating substantial capacity addition.

- The company continues to focus on margins and product mix. It is expected that domestic sales growth to pick up from 2HCY12 with the ramp up of production at new capacities.

- Bad monsoons could limit Nestle's ability to improve margins from the current level but new product innovations and extension to the current portfolio would support high double digit earnings growth.

- Continued slowdown in economic growth, poor monsoons and substantial commodity inflation are key risks to the target price.

Source : Equity Bulls

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