Brokerages Divided As Input Prices Rise

Analysts were divided because Nestlé India Ltd. released a mixed set of numbers in the third quarter of calendar year 2021, with management signaling growing concerns over input costs.

The company’s revenue grew 11.7% sequentially while profit after tax rose 14.6% to Rs 617.4 crore.

Instant noodle maker Maggi and Kit Kat chocolates, which tracks calendar year financial reports, said the price outlook for key categories like wheat, coffee and edible oils remains firm to bullish short. and medium term, while the costs of packaging materials continue to rise due to supply constraints, rising fuel and transportation costs. Fresh milk prices are expected to remain firm with a continued increase in demand and an increase in the cost of feed for farmers.

Peer Hindustan Unilever Ltd., which reported its September quarterly results the same day, reported high commodity inflation.

Nestlé shares remained stable in the early hours of trading. In the past month, the stock has fallen 4.42% against BSE.

Of the analysts following the stock, two recommend “buy”, two suggest “sell” and one suggests “accumulate”.

Here’s what the brokerages have to say about Nestlé India’s third quarter results:

Philippe Capital

  • Maintains buy rating with target price of 22,000 rupees each.

  • The stock has significantly underperformed benchmarks lately. Nestlé’s valuations became more favorable on a risk-adjusted basis.

  • It offers a safe harbor in this VUCA world (volatility, uncertainty, complexity and ambiguity) with earnings resilience (12% compound annual growth rate of earnings per share on CY 19-23) on a high share of essential commodities (> 80%), aggression in the innovation of existing categories, the development of new products and the increase of the distribution network, in particular in rural areas.

  • Domestic business momentum continued with the fifth consecutive quarter of double-digit revenue growth, but export activity has remained volatile in recent quarters, recording steady growth in the third quarter versus 10% growth. last year.

  • The launch of low unit packaging to gain traction in rural markets is a key positive.

  • Going forward, Nestlé will be able to manage the increase in the commodity index over the medium term through a higher product mix and price increases.

Prabhudas Lilladher

  • Retains the “accumulate” rating on the shares, but with a higher target price of Rs 19,501 on a discounted cash flow basis.

  • He estimates the compound annual growth rate of after-tax profit for CY 21-23 at 13.6%. The long-term outlook will be intact, but he expects returns back given the wealthy valuations of 63.8 times earnings per share on September 23.

  • Short-term margin pressure to support given inflation in palm oil, coffee, wheat and fluid milk.

  • After the second wave of Covid-19, sustained improvement was seen across all channels and strong growth was seen across all key brands except Maggi, aided by promotions, penetration and distribution.

  • The price outlook for key commodities such as wheat, coffee and edible oils remains firm. In addition, rising costs for packaging materials, fuel and transportation costs are expected to keep margins under pressure in the near term despite the emphasis on cost optimization.


  • Maintains the “hold” rating on the stock.

  • Lower-than-expected margins cause the brokerage to reduce CY21-23E’s earnings per share by 5%.

  • Growth trends remain stable, but efforts in new categories and innovations must accelerate to drive growth ahead of its peers.

  • Valuations at 57x EPS CY23E look rich given moderate earnings growth.

  • E-commerce sales continue on an upward trajectory and organized commerce saw a recovery with strong growth in the mid-1920s (compared to a moderate performance in the second quarter of CY21), mainly driven by coffee and confectionery.

  • As input prices are expected to remain high, we have revised our operating margin assumptions downwards. We remain bullish – estimate a decline of 50 basis points over CY21 and a gain of 200 basis points over CY22-23.


  • Maintains “buy” with a revised target price of Rs 22,100.

  • The main risks include competition from new entrants. ITC and Patanjali are key aggressive players in the noodle category.

  • Nestlé has launched premium variants in various categories such as chocolates, noodles, ketchup and dairy, which could hit the margin, in case they don’t click on the market.

  • Overall, the company with established brands in all food categories is expected to be a major beneficiary of rising incomes, urbanization, and changing lifestyles.

  • On the margin front, we expect inflation to continue.

  • The company’s new strategy, focused on turnover and market share, is encouraging. Nestlé’s focus on innovation and premiumisation is likely to drive volume-led growth.


  • Keep the “hold” rating on the stock.

  • It slightly reduced expected earnings per share for fiscal 22 by 3% due to a slight moderation in gross margins.

  • Management has focused only on cost inflation in its outlook, which is a headwind and poses a margin risk in the coming quarters.

  • In the third quarter, gross margins were lower than estimated and fell to a 17-quarter low – a disappointment although cost savings helped somewhat at the EBITDA level.

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