Despite a 38% rise in Q3 net profit, brokerages remain bearish on this stock; here's why

Updated : February 14, 2020 01:28 PM IST

Prabhudas Lilladher has a 'reduce' rating on the stock and cut its target price to Rs 11,886 per share from Rs 12,093 earlier.

Kotak Institutional Equities has also maintained a 'sell' call on the stock.

Despite reporting an over 38 percent rise in net profit for the December-quarter, brokerages have maintained a bearish outlook for Nestle India. While Prabhudas Lilladher has a 'reduce' rating on the stock and cut its target price to Rs 11,886 per share from Rs 12,093 earlier; Kotak Institutional Equities has also maintained a 'sell' call on the stock.

The company reported a net profit of Rs 473.02 crore for the quarter ended December, helped by volume growth versus a net profit of Rs 341.76 crore in the corresponding quarter a year ago. Net sales also rose 8.75 percent to Rs 3,130.74 crore during the quarter under review as against Rs 2,878.83 crore in the corresponding quarter last year.

Prabhudas Lilladher also cut its CY20 and CY21 EPS by 5.4 percent and 4.7 percent given that it represents a classic confluence of a lifetime high PE multiples and EBIDTA margins in a scenario of rising input costs.

"Although Nestle has been able to report a strong 10% domestic sales growth in a tepid demand scenario, it has also benefitted from relatively lower exposure to rural India (25 percent of sales) which has seen a significant slowdown in demand from past few quarters," the brokerage said in a report.

The brokerage also recommended switching to Britannia in the sector. Although Nestle has sustained growth momentum in KITKAT, MUNCH, Nescafe, and Maggi, the success of new launches holds key to sustaining double-digit sales growth, it added.

For the full year ended December 31, Nestle India's net profit rose 22.56 percent to Rs 1,969.55 crore as against Rs 1,606.93 crore in the previous year.

Net sales for the year stood at Rs 12,295.27 crore, 9.62 percent higher than Rs 11,216.23 crore in the year-ago period.

Commenting on the annual results, Nestle India CMD Suresh Narayanan said, "We have delivered broad-based volume and mix led growth. This is a trend we have demonstrated consistently in recent years."

"The trend of higher commodity prices witnessed in recent quarters is likely to continue in the near future," he said.

In a separate filing, Nestle India said its board in a meeting held on Thursday recommended a final dividend of Rs 61 per equity share for the year 2019.

Published : February 14, 2020 01:28 PM IST

Despite a 38% rise in Q3 net profit, brokerages remain bearish on this stock; here's why

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