Nestle India Limited - No triggers in the short term - Downgrade to HOLD - Antique

Results marginally below expectations

Nestle India Ltd.'s (Nestle) results were marginally below expectations with a growth in sales of 10% at INR22.5bn. EBITDA and PAT grew by 17% and 9% respectively to INR5.2bn and INR2.9bn. EBITDA margin improved in line with expectations, by 147bps to 23.2%, led by a 65bps drop in raw material cost to 44.8% of net sales and 88bps drop in other expenditure to 24% of net sales.

Expect a challenging CY13, Downgrade to HOLD

In view of the below than expected performance and the ensuing challenging environment which is leading to continued drop both in discretionary spends and non-discretionary spends, we reduce our CY13 and CY14 estimates by 2% and 3% to INR127 and INR166. At the CMP of INR4,853, the stock is trading at a PE of 38.2x CY13e and 29.3x CY14e. We believe in the long-term growth potential of Nestle India in view of the under penetration in its key categories like baby and infant food, instant noodles and chocolates and confectionaries. However, in the short term, the stock lacks triggers for re-rating. We believe that Nestle would be one of the early beneficiaries of any recovery in consumption demand. But we believe that the recovery would happen gradually over the next 12-18 months. Therefore, we downgrade the stock to HOLD at the current levels with a revised target price of INR4,972.

Source : Equity Bulls

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