Nestle India hits record high of Rs 8,090, up 3.5%

Since February 9, 2018, the stock of packaged foods company has outperformed the market by surging 16% after reported a healthy 59% YoY growth in net profit in December quarter.

Nestle India hit a new high of Rs 8,090, up 3.5% on the BSE on Tuesday, surpassed its previous high of Rs 8,001 recorded on December 14, 2017.

Since February 9, 2018, the stock of packaged foods company has outperformed the market by surging 16% after reported a healthy 59.5% year-on-year (YoY) growth in net profit at Rs 3,118 million in December 2017 quarter (Q4CY17). On comparison, the S&P BSE Sensex was down 2.3% during the same period.

“Nestlé India has underperformed the broader market and consumer peers over the past year given the slower-than-expected pace of earnings growth. Stock valuations (on a relative and absolute basis) are trading below historical averages,” analyst at JP Morgan said in recent note.

We expects a 4Q revenue/earnings beat and prospects of better revenue/margin delivery over CY18/19 to reverse this underperformance, the brokerage firm said with ‘overweight’ rating on stock and target price of Rs 8,400.

Analyst at Antique Stock Broking believes that, for CY18, Nestle India (Nestle) is well-placed to witness accelerated earnings growth, led by higher sales growth (prepared dishes and cooking aids revenue yet to touch CY14 levels of INR29.6bn) and expansion in gross margin. 

“More importantly, a broad-based drop in prices of key raw materials like milk and skimmed milk powder (47% of total raw material cost), wheat (11% of total raw material cost), coffee (10% of total raw material cost) and sugar (7% of total raw material cost) is likely to aid gross margin during the year,” it added.

We expect Nestle's revenue growth to accelerate during CY18 and CY19, led by product innovations, foray into new categories, and continued recovery in instant noodles. Additionally, a broad-based fall in prices of key raw materials is likely to aid margin expansion, the brokerage firm said in company update with ‘buy’ rating on the stock and 12-month target of Rs 8,894.