Sell Nestle India - Karvy

Nestlé India: (CMP: Rs. 4,760; Target Price: Rs. 4,564) - SELL

Consistent price hike, low discretionary spending amid rising competition across all categories has been impacting Nestlé India's volume growth for past few quarters. However, recent new launches with higher focus on rural market would aid the Company in showing better volume growth, going forward. Higher spending on capacity expansion would force Nestlé India to focus more on volume growth. As the likely pressure on pricing power would limit further expansion in EBITDA margin, we expect Nestlé India to maintain EBITDA margin at ~21% in CY12E & CY13E.

Outlook & Valuation: Nestlé India's valuations premium has declined to 25% compared to 40% in the previous year. We give 31x (PEG of 1.9x) multiple on 24-month forward earnings and derive target price at Rs4,564. We initiate coverage on Nestlé India with "SELL" recommendation.

Source : Equity Bulls

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