Nestle India - FMCG Stock To Buy

With the healthy growth in the domestic business and revival in exports, expect Nestle to witness 17.7 per cent CAGR in revenues and 24.6 per cent in profit over CY09-11.

Reco price: Rs 2,568
Current market price: Rs 2,525.55
Target price: Rs 2,915
Brokerage: India Infoline

Milk products and prepared dishes segments will be the key growth drivers for the company. The introduction of SKUs at low price points has helped to widen the consumer base and increase penetration of its brands. The improvement in exports from CY10 onwards is expected to fuel beverage sales that declined in the first nine months of CY09. The growth in the chocolates’ segment, that reported a muted volume growth due to sharp price hikes, is also expected to be back on track during CY10.

The strong pricing power and robust brand portfolio would help Nestle maintain operating margins despite firm raw material prices. With the increasing production from the Pant Nagar plant, Nestle would be able to save heavily on excise and tax front. Given the strong growth potential in the domestic market, the brokerage has revised its earnings estimates upwards by 3 per cent for CY09 and around 4 per cent for CY10.

At Rs 2,568, the stock is trading at 29.4 times its estimated CY10 EPS of Rs 88.3 and 24 times estimated CY11 EPS of Rs 107.2. Maintain "buy stocks" rating.