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On Friday, HSBC analysts downgraded Nestle India Ltd (NSE:NEST:IN) shares from Hold to Reduce, adjusting the price target from INR 2,500.00 to INR 2,150.00. The firm’s reassessment of the company’s stock came with a critical analysis of its growth prospects and market challenges.
The HSBC report highlighted that while Nestle India has maintained a premium valuation due to its underpenetrated and food-focused portfolio, it has not achieved growth rates higher than its competitors. Notably, two significant segments of Nestle India’s business, Milk Products & Nutrition, which accounts for approximately 40% of revenues, and Prepared dishes and cooking aids, comprising around 30% of revenues, are currently facing issues. These issues include problems with affordability and market share loss, respectively.
Additionally, HSBC pointed out that recent inflation in the cost of raw materials such as cocoa and coffee could impact the company’s margin outlook, particularly for the fiscal year 2026 estimates. This inflation concern, coupled with a revised revenue compound annual growth rate (CAGR) projection of about 8% from fiscal year 2025 to 2027—down from a 12% CAGR from calendar year 2021 to 2023—has led to a reassessment of Nestle’s projected performance.
The analysts at HSBC have set a new price-to-earnings (PE) multiple target for Nestle at 55 times, which is based on a comparison with the company’s historical five-year and ten-year average PE multiples, which are 63 times and 55 times, respectively. They also indicated that a key factor that could lead to further de-rating of the stock would be a failure to meet growth expectations and the realization that Nestle’s underpenetrated portfolio may not be positioned to deliver higher growth in the future.
The downgrade reflects HSBC’s view that Nestle India’s stock may not perform as well as previously expected, based on their analysis of the company’s market position and financial outlook.
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