Nestle India on Tuesday reported a 13.6 percent YoY rise in consolidated net profit for the quarter ended March 2020 to Rs 525.4 crore against a profit of Rs 462.7 crore in the same period last year. Total revenue during the quarter under review rose 10.7 percent to Rs 3,325.3 crore compared to Rs 3,003 crore.

However, the stock fell as much as 4.7 percent to Rs 16,633 apiece on the BSE as brokerages remained cautious on the stock. The stock has risen 14 percent in 2020 despite the ongoing coronavirus crisis which has led to a huge selloff in the markets.

Robust results notwithstanding, most brokerages remain bearish on the stock. CLSA had an 'underperform' rating, while Prabhudas Lilladher and HDFC Securities had 'reduce' calls. However, Jefferies raised the target price for the stock after its results.

According to CLSA, the March quarter results were strong but leave little room for upside. It added that margin contracted due to raw material-led inflationary pressure and the brokerage expects a strong 12 percent revenue CAGR over 2019-2021.

Similarly, Prabhudas Lilladher had a 'reduce' rating on the stock with a target price of Rs 13,127 per share. The brokerage believes softening input costs in milk, sugar and palm oil will reduce gross margin pressure on the company.

Although Nestle is better placed to face any impact from a slowdown in rural demand due to lower exposure, concerns on low growth in infant nutrition and beverages remains, it added. The brokerage recommends switching to Britannia given its market leadership in bakery, tailwinds from lower raw material prices and reasonable valuations.

Meanwhile, HDFC Securities said that Nestle’s performance in Q1CY20 was ahead of estimates as the company continued its strong growth despite the disruption caused by COVID-19.

Most players faced supply chain and channel liquidity issues during the last 10-15 days of March. Pantry loading supported packaged food business despite lockdown impact, it added. Brands such as Maggi, Kitkat and Munch continued to drive growth for Nestle even as out of home consumption slumped, noted the brokerage.

Despite beating estimates in Q1, HDFC Securities maintains 'reduce' call on the stock as it does not see any change in its annual estimates. The recent sharp re-rating amidst flight to safety limits any upsides in the medium-term and makes the risk-reward unattractive, it explained.

Meanwhile, Jefferies said that the double-digit revenue growth led to an earnings beat. The brokerage said that it likes the company's strategy to choose growth over margins. It also raised the stock's EPS forecasts by 4 percent over CY20. It maintains a 'hold' call on the stock but raised the target to Rs 16,650 from Rs 16,500 earlier.

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First Published:May 13, 2020 12:13 PM IST