Experts find 'cheeni kum' in Nestle shares. Here's why
Expensive valuations make the FMCG stock less appealing for Motilal Oswal which has a 'Neutral' rating on the counter. Its target estimates a 2.5% downside over Thursday's closing price.
Notwithstanding a 5% correction in shares amid the Cerelac controversy, its impact on the is likely to remain limited according to experts though expensive valuations may take away the sweetness from the counter.Expensive valuations make the FMCG stock less appealing for which has a 'Neutral' rating on the counter. Its target estimates a 2.5% downside over Thursday's closing price. Motilal places the price target at Rs 2,400, valuing the stock at 69X/61X P/E of FY25E/FY26E. The target is based on 60X March 26E P/E.
Exprt Gurmeet Chadha of Complete Circle Consultants told ET NOW that he would not have bought even without the sugar news given its expensive valuations. It is not a great idea to buy 70-80 earnings multiple stocks on a trailing basis and 50-60 times on a forward basis where the top-line growth is in single digit, he said. Chadha sees as a better bet over Nestle.
Motilal said it sees no material impact on the company from the recent fiasco which remains focused on volume-driven revenue growth. The planned capex of Rs 5,000 crore for 2023-25 reflects this focus and the packaged food category is likely to sustain better growth among staples, a brokerage note said.
Nuvama's Abneesh Roy went ahead to say that Thursday’s correction was not necessarily because of the Cerelac episode and instead was an outcome of back-to-back negative news flow -- first from cocoa cost increasing by almost 200-300% in the last one year and doubling over the last few months. Secondly, Nestle's margin expansion in the near term is looking a bit challenging because of coffee and cocoa cost being high and a 15 bps royalty hike every year for the next five years.
While dismissing arguments of the likely impact, Roy maintained that the company has reduced its sugar content in the last five years by 30% in the Indian products and will continue doing that.
He also ruled out comparison with the Maggi issue when the product was temporarily banned after its noodles were found to have lead content.
After hitting a 52-week peak of Rs 2,769.30 on the NSE, the stock has corrected by nearly 11%. With returns of approximately 18%, the stock has marginally outperformed Nifty FMCG over a 1-year period. The latter's returns in the same period stand nearly 14%. Meanwhile, the counter has underperformed broader Nifty which has delivered 26% in the said period.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
Source: Stocks-Markets-Economic Times
