Nestle India (NEST) 3QCY21 result has been in-line with our estimates. Revenue continued double digit growth momentum on a high base of 10%YoY. Organised trade recorded strong recovery with revenue growth at mid-twenties after a muted second quarter due to COVID-induced-lockdowns. Revenue growth in both metros and small towns stood at high double digit, stated IDBI Capital Equity Research.
MAGGI Noodles and MAGGI Masala‐ae‐Magic posted healthy growth while MAGGI Sauces reported muted growth due to decreased in‐home consumption, high base and increased competitive intensity. Milk Products and Nutrition (toddler range and milk made), Confectionary (power brands; Kitkat, Munch, Milkybar) and Beverage (Nescafe) grew at double digit. "Gross margin contracted for the first time after 4 consecutive expansions due to high input cost. Input prices are likely to remain firm. We value NEST at 60x CY23E EPS. Our revised TP stands at Rs 19,007. We upgrade our rating to Hold," the broking firm added.
Key Highlights and Investment rationale
Domestic business continues double digit growth momentum
Overall revenue grew 10%YoY (on a base of 10%YoY). Domestic sales grew 10% YoY driven by high single digit volume and mix growth while revenue from exports (5% revenue) grew 1%YoY on a high base of 9%YoY. Both metros and small towns reported double digit value growth.
Gross margin under pressure due to input cost inflation
Gross margin contracted 240bp YoY to 56% due to inflation in raw material price. EBITDA margin stood at 24.4% (-53bp YoY). EBITDA at a higher rate (at 7%YoY) compared to gross profit (at 5%YoY) due to operating leverage benefits; lower employee and other expenses (as % of revenue).
Maintain estimates; Hold
We broadly maintain our EPS estimates for CY21-22E. We have introduced CY23E in our estimates. Accordingly; we value NEST at 60x CY23E EPS. Our revised TP stands at Rs 19,007 with Hold rating.
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