Nestle India slips 3% post June quarter nos; here's what brokerages say

The company reported an 11.14 per cent increase in net profit at Rs 486.60 crore for the quarter ended June 2020, helped by an increase in sales.

Shares of Nestle India slipped nearly 3 per cent on the BSE on Wednesday after the fast-moving consumer goods (FMCG) major announced its June quarter numbers for the fiscal year 2020-21.

At 10:28 am, the stock was trading 2.5 per cent lower at Rs 16,670.50 on the BSE. It hit a low of Rs 16,618.70 during the trade against Tuesday's close of Rs 17,098.95. In comparison, the S&P BSE Fast Moving Consumer Goods index was trading flat at 11,442 levels while the S&P BSE Sensex was quoting 197 points or 0.51 per cent lower at 38,295.53 levels. 

For the quarter under review, Nestlé India on Tuesday reported an 11.14 per cent increase in net profit at Rs 486.60 crore for the quarter ended June 2020, helped by an increase in sales.

The company, which follows January-December financial year, had posted a profit of Rs 437.79 crore in the same quarter a year ago, Nestle India said in a BSE filing.

Its net sales rose 1.96 per cent to Rs 3,041.45 crore during the quarter under review from Rs 2,982.83 crore in the corresponding period of last fiscal. The company's domestic sales rose 2.55 per cent to Rs 2,907.74 crore in April-June quarter as against Rs 2,835.37 crore a year ago. CLICK TO READ FULL REPORT

What brokerages say

Analysts at Edelweiss Securities said that the company's Q2CY20 revenue and PAT growth of 2 per cent and 11.1 per cent, respectively, belied their estimate, while earnings before interest, taxes, depreciation, and amortisation (EBITDA) growth of 5.9 per cent YoY was in line. "With supply chain restored by the quarter’s end, we expect the revenue momentum to pick up significantly in H2CY20. Nestle’s high innovation and premiumisation agenda and cluster-based distribution strategy are also on track, and we believe this will sustain," the brokerage said in its report issued on July 28. It has maintained a ‘BUY’ rating on the stock with the target price of Rs 19,690.

Prabhudas Lilladher, on the other hand, notes that despite strong parentage, brands, and market leadership in key categories, valuations at 60.7xSep22 makes it retain "REDUCE" rating with the target price of Rs 14,089. "We still prefer Britannia given strong tailwinds from growth and lower raw material prices and reasonable valuations (41.9xSep22 standalone and 40xConsolidated earnings per share (EPS) with 16.9 per cent PAT compound annual growth rate (CAGR) over FY20-23).

Motilal Oswal Financial Services (MOFSL) maintains that Nestle remains among the best structural plays in the Indian Consumer space, led by a massive growth opportunity in the Indian Foods space, and the evident revival in topline and earnings momentum ahead of peers in recent years. Valuations are, however, rich at 67.2x CY21 EPS and 56.6x CY22 EPS. The brokerage maintains a "Neutral" rating on the stock with the target price of Rs 16,700. 

Analysts at YES Securities maintain an "ADD" rating on the stock as it provides high growth resilience in the current environment due to the nature of its portfolio and strong pedigree and distribution strength. The target price has been set at Rs 18,157.