“BUY” this large cap FMCG stock with a target price of Rs. 22,395: Sharekhan


Financial report of Nestlé India Limited

According to Sharekhan Ltd, “Nestlé saw consistent revenue growth of 10.9%, 10.6% and 7.2% in 2018, 2019 and 2020, respectively. Nestlé’s domestic volume was 4,68,000 tonnes in 2020, up from 3,43,000 tonnes in 2016.The company recorded a revenue mix and volume-based CAGR of 9.3% over 2016-2020. Higher volumes led to sustained growth in value with a national sales CAGR over 2016-2020 reported at 11%. Various cost reduction initiatives undertaken by the company coupled with operating efficiency gains helped improve the operating profit margin (OPM) from 17.6% in fiscal 2016 to 21.7% during fiscal year 2020. OPM recorded a CAGR of 16.6% over the period 2016-2020. During the same period, net profit registered a CAGR of 29.9%, while the ROIC declared CAGR of 39.2%. “

The brokerage in its research report said that “Nestlé’s 20-year annualized return between 2001 and 2021 is 19.8%. (42.8% contribution to revenue) growth at 1%, prepared meals and cooking aids (32.1% contribution to turnover) growth of 20.9%, growth of confectionery (14.9% contribution to turnover) of 22.3%, and beverages in powder and liquids (10.2% contribution to sales) to 15.7% KitKat and Munch recorded higher growth in the confectionery portfolio.

Sharekhan said in its research report that “Nestlé’s sales volume growth was 9.3% compared to CY2016-CY2020 with volume growth moderation of 9.6% in CY2019 and 5 , 7% in CY2020 compared to ~ 11% compared to CY2016-CY2018. The pandemic affected performance during the year 2020, causing volume growth to moderate. However, with the decline in COVID-19 cases , the good rate of vaccination and the improvement in attendance, the OOH categories will experience a marked improvement in their performance.In addition, the company is counting on growth levers such as 1) an increased presence in rural markets, 2 ) increased contribution to new products and 3) accelerated entry through new channels. We expect volume growth to improve to 11-12% in the medium term. “

The brokerage's perspective on Nestlé India Ltd

The brokerage’s perspective on Nestlé India Ltd

According to Sharekhan, “Nestlé India Limited (Nestlé) has underperformed the broader indices over the past year. Financial performance was affected by the supply disruption caused by the first wave of COVID-19, reduced sales of out-of-home (OOH) categories due to reduced mobility and lower sales at export. We believe that the moderate impact of COVID-19 on the performance of OOH categories is fading and we expect a strong comeback with better attendance in the coming quarters. This would help the company to In addition, the approval under the PLI scheme for the category of processed fruits and vegetables will act as an additional growth lever with the core innovation strategy, rural expansion and become a great game. on e-commerce to achieve medium-term double-digit profit growth. “

In its research report, the brokerage company noted that “the company is focusing on lower horsepower (production dropped 42% from CY2016-CY2020, saving Rs 50 crore), improving plant level efficiency, sourcing excellence and reducing via Project Shark (savings of Rs 200 crore in FY2020) to mitigate the impact of raw material inflation and drive sustainable margin expansion over the long term (OPM increased 217 basis points in FY2018-FY2021). In the coming years, PAT is expected to post a CAGR of 19% on CY2020-CY2023. The return profile is expected to remain strong as we expect the company to maintain a strong dividend payout in the years ahead thanks to healthy cash flow. ”

Buy Nestlé India Ltd with a target price of Rs. 22,395

Buy Nestlé India Ltd with a target price of Rs. 22,395

Sharekhan Ltd asserted that “Nestlé is the largest food company with a strong portfolio of packaged food and beverage brands, which will help it achieve good growth at a time when consumers are turning to premium brands. confidence and where rural aspirations improve, thus boosting overall penetration. The stock has underperformed the broader indices and is currently trading at 65.8x and 53.9x its EPS CY2022 and CY2023E, respectively. With capacity expansion (commissioning of 9th plant in Sanand, Gujarat ) and focus on improving reach in key markets, the company is well positioned to deliver double-digit profit growth over the medium term. This, combined with a cheerful dividend payout, makes it a good choice from a long-term perspective. As such, we maintain our buy recommendation on the stock with an unchanged price target (PT) of Rs. 22,395. “

Disclaimer

Disclaimer

The stock was featured in Sharekhan Limited’s brokerage report. Investing in stocks presents a risk of financial loss. Investors should therefore exercise caution. Greynium Information Technologies, the author and the brokerage are not responsible for any losses caused as a result of decisions based on the article.

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