Tuesday, Phillip Securities initiated coverage on Nestle India Ltd (NS:NEST:IN) with a Neutral rating.
The research firm's analysis suggests that Nestle India is poised to capitalize on India's increasing per-capita income due to its strong cost economics and a product range supported by advanced science. The company's well-established brands are expected to benefit from the rising aspirations of India's middle class.
Nestle India is also enhancing its manufacturing capabilities with a planned capital expenditure of Rs 42 billion between 2023 and 2025. Additionally, the company aims to expand its rural presence with low unit packs (LUPs) and targeted innovation.
These steps are anticipated to contribute to the company's growth. Despite these positive factors, the firm notes potential near-term risks associated with a slowdown in urban consumption, particularly in the milk and nutrition segments, which could lead to the stock remaining within a certain range in the short term.
Phillip Securities advises caution due to the premium valuation of Nestle India's stock. The firm's stance is to wait for signs of recovery in urban demand before considering an investment. The Neutral, or Hold, rating reflects this cautious approach, with the price target of INR2,410.00 based on a two-year forward price-to-earnings (PE) ratio of 58 times, which aligns with the company's five-year average.
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