UBS downgrades Nestle India to Neutral; Stocks trade lower

Nestle India’s rich valuation limits the upside. The stock is currently trading at 66x 1-year forward earnings, which is 1 standard deviation above the mean multiple.

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Shares of Nestle were trading nearly 1 percent lower on the NSE on September 27, after UBS downgraded the stock to Neutral from Buy with an increase in target price to Rs 24,500 from Rs 23,000. At 10:30 am, the stock was trading at Rs  22,785.80, 0.96 percent lower than yesterday’s close.

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According to the brokerage, Nestle India’s valuation is currently high, which may limit potential stock price growth. The stock is currently trading at 66x 1-year forward earnings, which is 1 standard deviation above the mean multiple. Despite this, UBS is optimistic about the company’s long-term revenue and volume growth. The brokerage highlights Nestle India’s strong brand equity, pricing and premiumisation levers, and focus on product innovation, which is expected to drive growth in rural markets.

In a recent interaction with CNBC-TV18, Nestle India Chairman and MD, Suresh Narayanan said that he “feels that Nestle India will do better than last year.” He added that he hoped they would hit double digits, despite possible challenges from food inflation.

Also read | Nestle India’s Suresh Narayanan hopes for a better Diwali season, pegs on core categories to deliver growth

For the quarter ending June 2023, Nestle India Ltd reported a consolidated net profit of Rs 698.34 crore up 36.8 percent from the previous fiscal. Revenue for the quarter also grew 15.14 percent from Rs 4,045.69, in the previous fiscal.

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