HDFC Securities noted that while Nestle's margins beat expectations its revenue missed the brokerage firm's estimates.
The Nestle Analyst: The HDFC Securities analyst team led by Varun Lohchab maintained their ‘reduce' rating for the stock with a price target of ₹18,500.
The Nestle Thesis: The analysts noted that the company's 14% year-over-year increase in revenue at ₹4,233 crore missed its expectation, as they estimated a 17.7% increase. The brokerage firm also highlighted that the company's sales volume dropped around 2% YoY in the December quarter "due to sustained inflation impacting demand in the semi-urban market."
The company's gross margin dropped 200 bps YoY at 55%. Analysts attributed the drop to elevated commodity inflation.
However, the firm observed that Nestle's EBITDA margin grew 20bps YoY to 23.4% after contracting for the last five quarters. The analysts attributed the growth to cost protection measures employed by the company.
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Analysts noted that the raw material prices are still up, especially in the food basket, but raw material prices for the non-food basket have eased up. Taking this into account the firm estimates a gradual increase in the company’s EBITDA margin to 24/25% in CY23/CY24.
The firm said that due to the company's rich valuation, it sees limited absolute upside in the medium term.
Price Action: Nestle shares slumped 2.88% to ₹19,055 in the late hours of trading on Friday.
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