Should you buy Nestle post-Q1 results?

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Maggi-maker Nestle India on April 21 released its Q1 numbers for the calendar year 2021. Net profit rose 14.62% to Rs 602.25 crore for the quarter ended March 2021 as against Rs 525.43 crore during the previous quarter ended March 2020. While the sales grew at 8.91% to Rs 3600.20 crore in the quarter ended March 2021 as against Rs 3305.78 crore during the previous quarter ended March 2020.

Nestle India follows calendar year as financial year.

At the operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) in Q1CY21 grew by 17.1% to Rs 929 crore with operating profit margin expanding by 190 basis points 25.83% compared to the year-ago period.

Nestle also declared an interim dividend of Rs 25 per share.

Commenting on Q1 results, Edelweiss Securities said, “With the second wave of the pandemic hitting the country, we expect Nestle to be a big beneficiary of a spike in in-home consumption. Overall, the company’s high innovation, ‘premiumisation’ agenda and cluster-based distribution strategy are on track, and we expect this to sustain.”

The brokerage has a ‘Buy’ rating on Nestle India with a price target of Rs 21,110.

Likewise, Sharekhan has maintained a ‘Buy’ rating on Nestle with an unchanged price target of Rs 19,055, as its domestic business grew by 10.2%; barring Q2CY2020, the domestic business achieved double-digit growth in the past eight quarters.

The brokerage further said that the company has a strong brand portfolio in the packaged food and beverages space, which will help it achieve good growth at a time when consumers are shifting to trusted brands and rural aspirations are improving, thereby boosting overall penetration.

However, HDFC Securities has a ‘Reduce’ rating on the stock with a price target of Rs 16,326. The brokerage house is of the opinion that higher advertising and sales promotion limited the EBITDA margin expansion. Also, the rich valuation that the stock commands gives a limited room for absolute upside in the medium term, thereby making the risk-reward unattractive.

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