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Shares of food and beverages major Nestle India tanked almost a per cent to Rs 19,185 per share as Q3CY21 results were below our estimates. Nestle India on Tuesday reported a 5% growth in net profit at Rs 617 crore for the September quarter as compared to Rs 587 crore in the year-ago period. The company follows January to December financial year, saw its net sales grow by 9.6% to Rs 3,865 crore for the reporting period. It was Rs 3,525 crore in the corresponding quarter last year.

The Board declared a second interim dividend of Rs 110 per share.

Gross margin contracted 240 basis points YoY to 55.5% due to higher raw material costs (Coffee up 40%, SMP up 20%+ and Palm oil up 55%) and normalization of trade schemes. Here is what brokerages have to say about the stock and the FMCG giant after its September quarter earnings.

Sharekhan | Rating: Buy | Price target: Rs 22,395

Nestle is the largest food company with a strong portfolio of brands in the packaged food & beverages space, which will help it achieve good growth at a time when consumers are shifting to trusted brands, rural aspirations are improving, thereby boosting overall penetration. With capacity expansion (commissioned its ninth factory in Sanand, Gujarat) and focus on improving reach in key markets, the company is well-poised to achieve double-digit earnings growth in the medium term. This along with a cheery dividend payout makes it a good pick from a long-term perspective.

Phillip Capital | Rating: Buy | Price target: Rs 22,000

Nestle stock has significantly underperformed benchmark indices in recent times and 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 (>80%), aggression in the innovation of existing categories, new product development, and increasing its depth of distribution network, particularly in rural areas.

Kotak Institutional Equities | Rating: Add | Price target: Rs 20,000

Nestle reported 10% YoY growth (2-year CAGR at 10%) in domestic revenues led by high single-digit growth in volume/mix. Growth was broad-based across categories and markets Gross margin pressure was partly offset by operating efficiencies/cost savings. The brokerage firm has trimmed CY2022-23E EPS estimates by 2-4%, roll over and revised price target to Rs 20,000 (from Rs 18,600). Nestle’s strong brand equity and product portfolio position it well to drive robust growth and navigate inflationary pressures.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)