PL First Cut – Nestle India 3QCY23

PL First Cut – Nestle India 3QCY23 – Amnish Aggarwal – Head of Research, Prabhudas Lilladher Pvt Ltd

Nestle India 3QCY23: Volumes up by low single digit, earnings beat led by higher margins

(CMP:Rs 23347|Accumulate)

Financial highlights:

> Revenues grew by 9.5% YoY to Rs50.4bn (PLe: Rs51.8bn) with domestic sales up by 10.3%.

> Gross margins expanded by 381bps YoY/167bps QoQ to 56.5% (PLe: 54.8%) due to higher net realizations.

> EBITDA grew by 21.6% YoY to Rs12.3bn (PLe: Rs 12.0bn); Margins expanded by 245bps YoY/167bps QoQ to 24.4% (PLe:23.1%)

> Adjusted PAT grew by 20.7% YoY to Rs8.1bn (PLe: Rs 8.0bn)

> Board declares a second interim dividend of Rs140/share (Rs167/share in 9MCY23).

> Approved a stock split 1:10

Business Update:

> Double digit domestic sales growth driven by mix, volume and price

> NEST continues to widen and customize RURBAN portfolio by introducing products which cater to specific local requirements

> D2C platform - www.mynestle.in has performed well in Delhi NCR and is set to be expanded to other cities

> E-Commerce contribution at 6.1% of sales.

Category Performance:

> Prepared Dishes and Cooking Aids: Growth momentum continues across portfolio driven by combination of market visibility, impactful media campaigns and targeted consumer engagement initiatives aided by innovation especially for RURBAN markets.

> Milk Products and Nutrition: Delivered double-digit growth. MILKMAID and PEPTAMEN continued to receive positive consumer response. Launched Nestlé a+ Masala Millet.

> Confectionery: Strong growth in KITKAT and MUNCH supported by consistent media support, digital first campaigns and a mega launch plan on KITKAT’s premium portfolio.

> Beverages: Double-digit growth across key brands NESCAFÉ Classic, NESCAFÉ Sunrise and NESCAFÉ GOLD. NESCAFÉ continues to cement its leadership position in the category with highest ever market share and strong household penetration gains.

> Pet Food: Felix Wet Cat food continued to receive positive feedback from trade and cat parents.

View:

NEST reported a strong set of numbers in the current context (low-single digit growth numbers expectations from the sector). We estimate low single digit volume growth. We expect firm commodity prices in coming quarters which will check any meaningful margin expansion from high levels of 3Q23. NEST remains a preferred pick given strong volume growth visibility as it is under indexed in small towns and rural India.

We have an ACCUMULATE rating on the stock.

Stock trades at 66.8x CY24 EPS