HDFC Securities has maintained 'Sell' on Nestle India with target price of Rs 4,400 as against current market price (CMP) of Rs 4,874 in its report.
Commenting on the investment rationale, the stock broker said, "Nestle's 1QCY14 revenues grew by a meager 2.9% to Rs 23.2 billion as domestic business continues to disappoint with 3.4% YoY growth (volume growth remains negative). Furthermore, exports declined by 4.4% YoY. EBITDA margin disappointed with 267bps YoY contraction led by higher COGS, other expenses and staff cost. Despite higher other income (143% YoY), APAT declined by 7.1% YoY to Rs 2.6 billion.
Nestle's enhanced focus on premium product portfolio in the current macro environment surprises us. We believe that the ill timed move will not just hurt revenues in CY14 but also impact market share. Also, the price hike (5-8%) initiated by the company across product portfolio would further hurt volume growth. Furthermore, Nestle appears vulnerable in the near term as its entire product portfolio faces severe competitive pressure. We remain baffled by Nestle's reluctance to launch products in emerging categories."
