Maintain Buy on Nestle India - Positive on Volume Growth - Motilal Oswal

Nestle India: Positive on volume growth; capex plan reflects management confidence

- Management is very positive on volume growth potential. It has indicated capex of Rs17b across segments; greenfield units are also under consideration.

- The R&D center at Manesar will be set up by the parent company (cost: Rs2.5b) and will commission by 2012. This will be the parent's 30th R&D center.

- Milk prices have not come off, prices of coffee and palm oil have spurted recently while other input prices are holding firm; the scenario is challenging.

- Nestle's volumes have increased by 16.3% during 9MCY10 despite a late Diwali and reduced supply of milk products in less profitable channels.

- Management highlighted that they would look at funding the capex by reducing the payout ratio and raising both domestic and offshore debt.

Our EPS estimates stand downgraded by 7% to Rs103.1 for CY11 and by 5% to Rs125.5 for CY12. Nestle remains one of the best consumer plays, with strong growth visibility. We estimate 21% PAT CAGR over CY09-12. Maintain Buy.

Source : Equity Bulls

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