Nestle India offers safe harbour in this VUCA world; should you invest?

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Analysts retained their bullish view on Nestle India after it posted a 10.68% growth in its net profit at Rs 538.58 crore for the second quarter ended June 30, led by an increase in sales volume of key products. Shares of the company traded 1.02% down at Rs 17,829 at around 1.25 pm (IST) on Thursday. On the other hand, the benchmark BSE Sensex was up 289 points, or 0.55%, at 52,732 at around the same time.

The FMCG major, which follows the January-December financial year, had posted a net profit of Rs 486.60 crore in the same quarter last year. Net sales increased 13.83% YoY to Rs 3,462.35 crore.

Brokerages view

Phillip Capital believes that Nestle India is one of the best ways to play “The Great Indian Consumption Story”. It has a ‘Buy’ call on the FMCG major with a target price of Rs 20,500, indicating an upside of 15% from the current market price.

Shares of Nestle have underperformed in recent times. “We believe Nestle’s valuations have become more favourable on a risk-adjusted basis. It offers safe harbour in this VUCA world with earnings resilience on a high share of essential products (over 80%), aggression in the innovation of existing categories, new product development, and strong distribution network,” Phillip Capital said in a report.

VUCA is an acronym to describe the volatility, uncertainty, complexity and ambiguity of general conditions and situations.

Domestic sales growth was driven by volume and mix, Nestle India said in a post-earnings statement. It further added that exports increased by 17.7% YoY. Major products like Maggi Noodles, Kitkat, Nestlé Munch, Maggi Sauces, Maggi Masala posted double-digit growth.

YES Securities is also bullish on Nestle with a price target of Rs 20,327. “While the performance was soft in Q2 despite a weak base, our conviction on Nestle India as one of our top picks in the staples space remains given category tailwinds and strong innovation, distribution and premiumisation initiatives,” the brokerage said adding it reiterated ‘Add’ rating based on 60 times CY23E earnings, with premium valuation supported by high growth visibility and return ratios.