2,420% Dividend, 1:10 Stock Split: Nestle Coming Up With Rewards For Investors, Top Q3 In Feb; What To Expect?

Nestle India is gearing up for its upcoming quarterly earnings, and two leading research reports provide diverse perspectives on the company's future. A recent KR Chocksey report anticipates robust revenue growth and offers an 'accumulate' rating, while Institutional Research, in its brokerage report, suggests a 'reduce' rating with a detailed analysis of revenue, gross margins, and target price.

KR Chocksey projects a YoY revenue growth of 11.9% for Nestle India, despite a QoQ decline of -5.4%. The growth is underpinned by mid-to-high single-digit volume growth and pricing increases. The report also expects an improvement in EBITDA margin by 78 bps YoY, although a QoQ moderation of 42 bps is foreseen due to heightened Advertising & Promotion spending. Net profit is expected to surge by 21.0% YoY, but a -16.3% QoQ dip is predicted.

Key parameters include a trajectory of category-wise growth, town-wise performance, competitive intensity, pricing strategy, and insights into the Royalty agreement renewal in June 2024. The 'accumulate' rating comes with a 12-month target price of Rs 2,611 per share.

The report from KR Chocksey reflects broader challenges in the FMCG sector. Demand trends have remained stable but without a significant uptick on a QoQ basis. Despite the moderation of India's Consumer Price Index (CPI) from 7.44% in July 2023 to 5.55% in November 2023, a meaningful demand pickup is yet to be realized, especially in rural markets. October 2023 showed a slight uptick in sales due to festive stocking, but November 2023 faced pressure from higher inventory levels. The anticipation of a strong festive season in Q3FY24 is not expected to materialize favourably.

On the other side, Institutional Research models a 12% YoY revenue growth for Nestle India and highlights a four-year revenue CAGR of 11%. However, a 'reduce' rating is given, with a 12-month target price of Rs 2,100 per share. The report anticipates a decline in gross margins by 105bps YoY to 53.8% and projects EBITDA growth of 10% YoY, with an EBITDA margin of 22.9%.

Institutional Research echoes concerns about the slow demand pickup in the FMCG sector. The expectation for Q3FY24 suggests a 4/9% growth YoY/four-year CAGR in revenue, mirroring the trends seen in the preceding quarter. Recovery in rural markets remains below expectations, while urban demand remains steady. Despite the festive season, no significant cheer has been witnessed. The report looks toward a gradual recovery in CY2024, driven by moderating inflation, government spending, easing liquidity pressures, and consumer-friendly pricing across categories.

Nestle India recently set January 5 as the record date for its approved stock split at a ratio of 1:10. This strategic move is aimed at enhancing stock liquidity without impacting the overall value of shares. The company's second-quarter results showcased a notable 36% YoY increase in profits, reaching Rs 908 crore, while revenues grew by 9.6%, totalling Rs 5,036 crore.

Foreign Institutional Investors (FIIs) reduced their stake in Nestle from 12.38% in the June quarter to 12.1%, while Domestic Institutional Investors (DIIs) increased their ownership from 9.05% to 9.32% over the same period.

As of January 25, Nestle India's stock concluded at Rs 2,481 per share, marking a 1.3% decline. Year-to-date, the shares have depreciated by nearly 7%. Despite this, Nestle India has witnessed a substantial 29% surge in the last year and generated returns of approximately 43% over the past three years.

The 52-week trading range for Nestle India shares on the NSE is Rs 1,788 to Rs 2,769.30 per share.

As Nestle India prepares for its quarterly earnings, investors are faced with divergent perspectives from research reports. While KR Chocksey sees potential for growth and recommends accumulating shares, Institutional Research takes a cautious stance, suggesting a reduction in rating. The FMCG sector, as a whole, grapples with slow demand pickup, and market participants will be closely watching for cues on Nestle's strategy and performance in the coming months.