Dec 3, 2023
Rating: neutral; Nestlé India: High capex to boost growth
NESTle declared an in-line set of results; however, the tonnage dip in Q4CY22compared to preceding quarters indicate that the high inflation is likely to curb volume growth in the near-term. The company is planning a capex of Rs 5,000 crore over the next three years, which is expected to boost volume growth, especially in prepared dishes (Maggi) and chocolates and confectionary over the medium term. Valuations of 56xCY24 EPS fully capture the stock’s upside potential over the next year. We reiterate our Neutral stance on the stock.
Results in line with estimates
Category performance
Prepared Dishes and Cooking Aids: The company recorded strong growth momentum, led by a healthy balance of product mix, pricing, and volume growth in Maggi Noodles and Maggi Masala-ae-Magic.
Milk products and nutrition: Milkmaid and Ready-to-Drink registered strong growth.
Confectionery gained market share and delivered robust growth, driven by Kitkat and Munch.
Beverages: Nescafe Classic, Nescafe Sunrise, and Nescafe Gold registered double-digit growth. Nescafe RTD and ‘out of home’also delivered strong double-digit growth.
The long-term narrative for revenue and earnings growth is highly attractive. The packaged foods segment offers immense growth opportunities in India. This is particularly true for a company such as NEST, which has a strong pedigree and distribution strength. The successful implementation of its volume-led growth strategy in recent years provides confidence in execution as well. However, even as some major input prices have started to soften, NEST continues to face commodity cost headwinds.
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