Broker’s call: Nestle (Accumulate)

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Target: ₹25,471

CMP: ₹24,122

We increase CY24/25 EPS estimates by 1.9/0.7 per cent and target price to ₹25,471 (₹23,585 earlier) on rollover, margin beat in Q3-23 and double digit domestic sales growth (despite late festival season). Nestle continues to report broad based growth across segments, markets (Metros, T1-6 cities & rural markets) and channels (MT, OOH and E-commerce).

Long term growth drivers remain intact, led by sustained expansion in rural reach (about 20-25 per cent of sales), healthy innovation pipeline (Masala Millet and KitKat premium portfolio in Q3-23), huge scope of growth in segments like coffee, RTD & Chocolates, higher growth in channels like E-Com and MT and strong traction in nascent Pet care segment.

We believe most of the gains from soft RM has been derived and incremental margin expansion will come at a tepid pace as shortfall in production is likely to keep prices of edible oils, Coffee, sugar, spices and wheat firm in the near to medium term.

We factor in EBITDA margin expansion of 40bps beyond CY23 (23.6 per cent with 140bps improvement). We introduce CY25 earnings estimate with 12.2 per cent EPS CAGR over CY23-25.