Standard Chartered Equity research has downgraded Nestle to In-Line as all-time-high forward price/earnings of 39 times offers no upside potential. Results lower than expected with net sales, Ebitda and net profit growing by 13.1 per cent, 19.5 per cent and 9.2 per cent respectively, against analysts' expectations of 16.6 per cent, 21.4 per cent and 16.6 per cent, respectively. Reduced focus on low-margin products and channels hurts domestic sales growth (13.7 per cent) but improves gross margins by 300 basis points y-o-y. Higher depreciation and tax rates moderate bottom line growth. Standard Chartered equity research has cut its CY12/13 EPS estimates by 3.4/4.6 per cent and revised its 12-month price target to Rs 4,761 (earlier Rs 4,938). Downgrade to In-Line.
Reco price: Rs 4,935;
Target price: Rs 4,761
Standard Chartered Equity research
Reco price: Rs 773;
Target price: Rs 625
Sales growth appears lumpy; order decline of 45 per cent and order book erosion of 18 per cent further deteriorate the outlook. Margin improvement accentuated by release of provisions; headwinds prevail as low volumes & pricing pressure persist. Siemens's commentary regarding the current business environment has turned extremely cautious.
The demand outlook remains weak, volumes are likely to be low, and pricing pressure (competition) may intensify, as demand in China is eroding fast. HSBC has cut its FY13 EPS estimates by nine per cent and it expects earnings downgrades to drive the stock lower. Maintain Underweight.
HSBC Global Research
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