Q1CY21 outcomes have been resilient and spectacular regardless of excessive base, Nestlé’s home gross sales progress at 10.2% y-o-y was quantity and mix-driven.
By HSBC International Analysis
Nestlé’s Q1CY21 10.2% y-o-y India gross sales progress regardless of a powerful base, with 17% EBITDA progress, signifies resilience. However Nestlé considerably underperformed final yr, pushed by previous outperformance, valuation and the market’s risk-on context Structurally enticing Nestlé now presents defensiveness and robust earnings in a unstable yr. Purchase with TP of Rs 20,000.
Nestlé risk-reward seems fairly beneficial Nestlé inventory has been flat up to now one yr, making it the worst performer within the shopper staples peer group. This was even though working efficiency for Nestlé has been pretty resilient throughout COVID-19 even with the disruption in out-of-home consumption classes. The principle cause for Nestlé being held again was its valuation run-up, in our view, because it had been the very best performer within the shopper group previous to the Covid-19 disruption (pushed by its working efficiency that stood out by a margin constantly), resulting in growth in multiples. Because the market was in risk-on mode, Nestlé missed the market rally. Now, because the market turns into unstable once more, we expect Nestlé’s attraction as a powerful defensive with a strong earnings outlook will enhance, and we view the risk-reward as fairly beneficial.
Q1CY21 outcomes have been resilient and spectacular regardless of excessive base, Nestlé’s home gross sales progress at 10.2% y-o-y was quantity and mix-driven. Export gross sales, nonetheless, declined by 12.9% y-o-y on decrease exports to associates. Merchandise linked to in-home consumption continued to do effectively with double-digit progress. Out-of-home channels improved in sequential phrases however remained impacted. Benign RM prices led to a 223bp gross margin growth.
Nevertheless, EBITDA margin growth (of 190bp) was barely decrease as a consequence of greater promoting and gross sales promotion bills. Total, Q1CY21 internet gross sales/EBITDA/PAT rose by 8.6%/17.2%/14.6% y-o-y.
Gross sales have been in keeping with consensus, however EBITDA/PAT have been 3%/4% forward of consensus. Nestlé introduced an interim dividend of INR25/sh.