Nestle India's Capex Plan Can Spur Double-Digit Growth: Nomura
The brokerage maintains a 'buy' on the firm with a target price of Rs 22,990, implying an upside return potential of 20.2%.
Nestle India Ltd.'s focus on driving penetration and investments in high-margin new product development should deliver sustainable growth in the medium term, according to Nomura Holdings Inc.
India is among the fastest growing markets for Nestle SA. The parent company has budgeted Rs 5,000 crore in capital expenditure for the country over the next three years for new facilities, expanding product portfolio and pursuing inorganic opportunities, Nomura said in a note on Friday.
The brokerage said the capex over the calendar year 2022–2025 towards expanding capacities could lead to compounded annual growth rate of 10–15% for sales over the next four–six years—at three times historical asset turns.
It maintains a 'buy' rating on the Maggi Noodles firm, with a target price of Rs 22,990, implying an upside return potential of 20.2%.
According to Nomura, the focus areas of Nestle India are stepping up volume growth, deepening distribution reach under the 'Rurban Mission', introducing value-added products by leveraging Nestle's research and development capabilities, and striking a balance between the economy and nudging consumers towards a premiumisation trend to accelerate the overall growth momentum.
Nomura said the company saw double-digit growth momentum across all categories, except for milk products and the nutrition division, which saw 9% year-on-year growth. The trajectory was driven by growth in the quick commerce and click and mortar channels. The growth in quick commerce channels was driven by new user acquisition initiatives through targeted digital communication and consumer education.
Under the 'Rurban' drive, Nestle India's total touchpoints to reach pan-India were 5.1 million, with the direct reach increasing to 1.5 million touchpoints. The fast-moving consumer goods company accelerated its reach expansion across more than 6,100 wholesale hubs and over 8,000 redistributors, with the 'Rurban' smart store count at 16,000, it said.
"Premiumisation continued to be a key focus area for Nestle India, with the company introducing several innovative value-added products to improve its overall product mix," the note said. The launch of global cereal brand Gerber also aided in this initiative.
Growth In Exports
Nestle India's exports revenue grew by more than 8% on a year-on-year basis in calendar year 2022, with healthy, broad-based growth across all categories.
The company's focus has been to promote the Indian product portfolio, especially in the confectionery and foods category, in the international markets through both traditional and mainstream channels, Nomura said.
The brokerage said that during CY22, the prepared dishes and cooking aids portfolio witnessed growth in the key export markets of Canada, the U.S., Australia, New Zealand, and Singapore, driven by growth in Maggi Masala-ae-Magic, Maggi noodles, Maggi sauces, and the Pazzta range.
Shares of Nestle India fell 0.58% on Friday, as compared with a 0.69% decline in the benchmark Sensex.
Out of the 38 analysts tracking the company, 22 maintain 'buy' rating, 10 suggest 'hold' and six recommend 'sell' on the stock, according to Bloomberg data. The 12-month consensus price target implies an upside of 10.7%.