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.

See Also: Analyst Slashes Adani Wilmar's Target Price By ₹190 Despite Sturdy Growth Outlook: Here's Why

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. 

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.

Read Next: Bata India Shares Fall As Analyst Dubs Recovery From Pandemic ‘Underwhelming’