Analysts upgrade Nestle India, but target prices show limited upside

Mumbai: Some brokerages have upgraded Nestle India as its net profit for the September quarter exceeded estimates, but consensus ratings are largely mixed and revised target prices indicate a limited upside in the stock.The maker of Maggie noodles on Friday reported a 1.4 per cent year-on-year fall in net profit at Rs 587 crore for the September quarter, but it was higher than consensus estimates. The stock ended up 2.5 per cent at Rs 16,256.20 on Monday.Investec maintained a hold rating after the result and raised target price to Rs 17,648 from Rs 17,079, Kotak Institutional Equities maintained a reduce recommendation with unchanged target price of Rs 16,000, and Motilal Oswal maintained neutral rating with a revised target price of Rs 16,440.Emkay upgraded the stock to hold from sell and revised target price slightly higher to Rs 15,800 from Rs 15,600. Nomura upgraded the stock to buy from neutral and raised target price to Rs 18,925 from Rs 17,250. HSBC and Antique have maintained buy ratings.Nestle’s double-digit sales growth in the September quarter got a thumbs up from several brokerages but valuations according to them are a concern.“While the structural investment case is strong, valuations of 64.9 times CY22 (calendar year 2022) and 55.9 times CY23 EPS (earnings per share) do not offer any material upside potential from a one-year perspective,” said Motilal Oswal.78879968Investec said Nestle’s longer term intent to drive double-digit revenue growth and strong margin expansion-led earnings growth in the short term are both positives but normalising growth for in-home consumption categories, high urban skew and valuations at 50 times CY22 estimated earnings limit stock returns from current levels.CLSA has upgraded the stock to outperform from sell as it sees accelerated packaged-food tailwinds boosted by Covid-19, a consumer preference for trusted brands, near normalcy in urban markets and a rebound in operations.

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