Accumulate This Large Cap Food And Beverage Stock: KR Choksey

KR Choksey, a leading brokerage firm has asked investors to accumulate the stock of largest food and beverage company, Nestle India Limited. The brokerage feels that the share price of the company will potentially rise by upto 15.1%, despite the company experienced significant pressure on the margins after delivering strong double-digit topline growth.

According to the brokerage firm, Indian FMCG sector experienced turbulence in CY22 including a sharp rise in inflation worsened further by supply chain issues with an increase in fuel costs. Rural inflation was higher than urban inflation which delayed rural consumption. "Against the revenue growth of 14.6% YoY, the Cost of goods sold grew by 22.1% YoY, employee costs grew by 6.9% YoY and Other expenses grew by 14.4% YoY. However, the pressure on gross margins was not entirely mitigated for the year and Nestle saw pressure on the EBITDA margins, which declined by 206 bps YoY to 22.1% in CY22 from 24.2% in CY21."

The company continued to see volume growth which is broad-based across most categories, despite the tough macro environment. There was positive growth across town classes in all 4 quarters of CY22. According to the research report, "Through procurement strategies, internal savings programs, enhanced efficiency and calibrated pricing decisions, Nestle has delivered consistent QoQ EBITDA margin improvement in Q3CY22 and Q4CY22, post the bottom in Q2CY22."

KR Choksey reccomends investors to accumulate stock of Nestle India limited as it believes that revenue and profit will grow as the company is focusing well for growth. "We expect revenue and Adj. PAT to grow at a CAGR of 10.8% and 18.6% over CY22-CY24E, respectively. We like Nestle for its focus on penetration-led growth, especially in RURBAN. We also like the focus on premiumization, and cost rationalization and expect these factors to aid margins going ahead. We continue to apply P/E of 61.7x on CY24E EPS of Rs 353.2 and maintain our target price of Rs 21,805 per share (unchanged) with an upside potential of 15.1% from the current market price. Accordingly, we maintain an "ACCUMULATE" recommendation on the shares of Nestle India."

Besides, the company has recommended a final dividend of RS 75 per equity share and 2 interim dividends of Rs 25 and Rs 120 per equity share, respectively in CY22. The total dividend declared for the year stands at Rs 220 per equity share compared to Rs 200 per equity share in CY21, a 10.0% increase.

The latest market price of Nestle India Limited stock is Rs 19063.45 per share, it was up by 0.71% over previous day's closing. Its 52-week high is at Rs 21,053 per share and 52-week low is at Rs 16,000 per share.

Disclaimer:
The stock has been picked from the brokerage report of KR Choksey, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.