Target: ₹22,000
CMP: ₹18,815
Nestle India continues to report mid to high teens (14-18 per cent) revenue growth driven by broad-based performance across all segments. Impact of price hike on LUPs (15-20 per cent salience) is moderately concerning. However, early-signs of clawing back volume market share in the main-stream and premium segments is comforting. We maintain our long-term investment thesis of Nestle’s likely outperformance compared to peers.
Q4-CY22 good revenue performance (+14 per cent y-o-y) has benefits of strong recovery in large metro cities along with continued deeper expansion in lower tier towns and villages and a portfolio which is better insulated to overall market slowdown (rurban distribution expansion is helping). Gross margin contracted 193 bps y-o-y to 54.6 per cent (up 218 bps q-o-q).
The management highlighted that fresh milk, cereals, grain, and coffee remain inflationary while there are early signs of softening in edible oils and packaging materials. We note that the management had highlighted that it is looking to drive cost-control measures to partly offset inflationary impact.While margin pressure continues, some cool-off is seen in select commodities of edible oils and packaging materials.
We believe the street will continue to appreciate volume-based outperformance which Nestle is witnessing.