Target: ₹22,600

CMP: ₹21,002.65

We increase CY23/24 EPS estimates by 1.6 per cent/0.7 per cent following strong revenue performance with 5 per cent volume growth (ex LUP Maggi 11-12 per cent). However, we trim our gross margin estimates by 50bps/20bps in CY23/24 as rising prices of milk (about 40 per cent of RM basket) might delay margin recovery.

Growth momentum remains intact across large metros & rural markets with growth across all channels like MT, OOH and E-commerce. Medium to long term growth drivers remain intact, led by: sustained expansion in rural reach (about 20 per cent of sales) availability of capacity in Maggi post expansion; huge scope of growth in segments like coffee, RTD & chocolates; and channels of future like e-Com as well as newly launched D2C website platform - mynestle.in.

Nestle is expected to gain from lower costs of palm oil, but firm prices of milk, fuel and coffee will curtail gains. However as margins in 2Q22/3Q22 were lower by 130/260bps than 1Q22 levels, expect QoQ margin expansion in next 2 quarters.

We expect moderate returns given rich valuations of 58.8x CY24 EPS. Maintain Accumulate with a DCF based TP of ₹22,600 (₹22,070 earlier).