Analysts at brokerage UBS have downgraded the rating on Nestle India to ‘neutral’ from ‘buy’ earlier as they see the higher valuation of the stock limiting upside.

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The brokerage, however, raised the target price of the stock from Rs 23,000 per share to Rs 24,500, implying a potential upside of up to 7 percent from the current trading price.

The brokerage in a note mentioned that the rich valuation of Nestle India limits its upside as shares are trading at 66 times 1-year forward earnings, 1 standard deviation (1SD) above mean multiple.

A stock 1SD above mean multiple may be overvalued or simply more risky than other stocks with similar multiples.

The brokerage, however, remains optimistic about Nestle India’s long-term revenue and volume growth.

Explaining the rationale, UBS mentioned five main factors that would drive its long-term growth.

Strong brand equity, pricing and premiumisation levers like Gerber and the company’s focus on accelerating growth in rural markets are among the factors pushing long-term growth.

Product innovation and increased capital expenditure would also support growth over the long term, according to UBS.

Nestle shares declined around 1 percent to touch a low of Rs 22,780 on Wednesday on BSE amid a weak trend in the broader market.

The stock has moved in line with gains in the broader market indices in the past month and rallied around 5 percent to trade near its 52-week high levels that it hit in July 2023.

The company on Tuesday informed bourses that its board will meet on October 19, 2023, to consider and approve financial results for the third quarter and nine months ending 30th September 2023.

Nestle shares were trading 0.8 percent lower at Rs 22,818 apiece on BSE at 10.19 AM.