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Nestlé India
Good entry point; well placed in an inflationary regime
We upgrade Nestlé to OUTPERFORM (from IN-LINE)
with a 12-month price target of Rs3,949, valuing it at 30x
CY12E earnings. Nestlé, with its high pricing power, is
best placed to sustain margins in an inflationary regime.
Nestlé’s stock price has declined 16% in the past one
month and offers a good entry point, in our view.
We remain positive about Nestlé’s growth prospects
across its various businesses. Over CY10-12E, we
expect net sales and EPS CAGRs of 19.1% and 24%,
respectively.
Correction offers a good entry point. Upgrade to O/P.
We initiated coverage on Nestle on 19 Jan ’10 with an
IN-LINE rating; however, significant decline in the past one
month (Nestlé down 16% compared to 8% and 11% for the
Sensex and the BSE FMCG Index, respectively) offers a
good entry point. We maintain our earnings estimates and
12-month price target of Rs3,949. Upgrade to
OUTPERFORM with an implied upside of 23%.
Relatively insulated from inflation. Monopolistic position
in infant nutrition, leadership position in noodles, milk
powder & coffee with unmatched brand equity in all its
businesses ensures that Nestlé has enough pricing power
to absorb input cost inflation. Despite an average inflation of
9.2% in Nestlé’s commodity basket during CY05-10,
EBITDA margins have remained stable between 19-21%.
Long-term growth prospects remain intact. We continue
to believe that Nestlé is best-placed to ride the high-growth
packaged foods sector in India and expect it to post net
sales and EPS CAGR of 19.1% and 24%, respectively, over
CY10-12E. Growth is expected to be robust across
businesses. Prepared dishes CY10-12E gross sales CAGR
is estimated at 27%, followed by chocolates, milk products
and beverages at 19.5%, 18.0% and 10.8%, respectively.
Valuations now reasonable. Post the recent correction,
Nestlé trades at CY11E P/E of 30.8x. It deserves to
command a premium to its five-year median given
sustainable, high-quality and inflation resistant earnings with
higher-than-industry growth. We value it at a forward P/E of
30x CY12E EPS compared to the five-year median of 25.4x.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Nestlé India
Good entry point; well placed in an inflationary regime
We upgrade Nestlé to OUTPERFORM (from IN-LINE)
with a 12-month price target of Rs3,949, valuing it at 30x
CY12E earnings. Nestlé, with its high pricing power, is
best placed to sustain margins in an inflationary regime.
Nestlé’s stock price has declined 16% in the past one
month and offers a good entry point, in our view.
We remain positive about Nestlé’s growth prospects
across its various businesses. Over CY10-12E, we
expect net sales and EPS CAGRs of 19.1% and 24%,
respectively.
Correction offers a good entry point. Upgrade to O/P.
We initiated coverage on Nestle on 19 Jan ’10 with an
IN-LINE rating; however, significant decline in the past one
month (Nestlé down 16% compared to 8% and 11% for the
Sensex and the BSE FMCG Index, respectively) offers a
good entry point. We maintain our earnings estimates and
12-month price target of Rs3,949. Upgrade to
OUTPERFORM with an implied upside of 23%.
Relatively insulated from inflation. Monopolistic position
in infant nutrition, leadership position in noodles, milk
powder & coffee with unmatched brand equity in all its
businesses ensures that Nestlé has enough pricing power
to absorb input cost inflation. Despite an average inflation of
9.2% in Nestlé’s commodity basket during CY05-10,
EBITDA margins have remained stable between 19-21%.
Long-term growth prospects remain intact. We continue
to believe that Nestlé is best-placed to ride the high-growth
packaged foods sector in India and expect it to post net
sales and EPS CAGR of 19.1% and 24%, respectively, over
CY10-12E. Growth is expected to be robust across
businesses. Prepared dishes CY10-12E gross sales CAGR
is estimated at 27%, followed by chocolates, milk products
and beverages at 19.5%, 18.0% and 10.8%, respectively.
Valuations now reasonable. Post the recent correction,
Nestlé trades at CY11E P/E of 30.8x. It deserves to
command a premium to its five-year median given
sustainable, high-quality and inflation resistant earnings with
higher-than-industry growth. We value it at a forward P/E of
30x CY12E EPS compared to the five-year median of 25.4x.
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