Buy Nestle India: Motilal Oswal

Motilal Oswal has maintained its buy rating on Nestle India, in its report dated May 18, 2009.
“In 1QCY09, Nestle India reported 10.7% (11.8% excluding discontinued products) growth in domestic volumes and 25% decline in export volumes as against overall volume growth of 16.9% in CY08. The input costs environment is improving; prices of coffee (5% of sales), wheat (9% of sales) and palm oil (4.5% of sales) have declined by 17%, 3% and 7%, respectively over 1QCY09 though milk (15% of sales) and sugar (2% of sales) prices have increased by 3% and 14%. Lower input costs of wheat flour and palm oil will boost margins of the fastest growing SBU (Maggi Noodles).”
“We believe that resolution of strike at Pantnagar facility will limit the production loss due to pipeline inventory. Beverages will remain under pressure (Coffee exports decline and slowdown in consumption at call centers/BPO), although declining input costs can surprise on the margin front. Our current estimates factor in 30bp decline in gross margins and 60bp expansion in EBITDA margins. The stock trades at 24.7x CY09E EPS of Rs 70.4 and 20.4x CY10E EPS of Rs 85.3. Maintain Buy,” says Motilal Oswal’s report.

(Source: Moneycontrol)