Nestle India's third-quarter results for the calendar year 2023 were announced recently, demonstrating a 9% growth in revenue and expanded margins. The report, released on Friday, indicates that domestic revenue has increased by 10% year-on-year. This growth was primarily driven by careful pricing and volume growth, aligning with InvestingPro Tips that highlight Nestle's impressive gross profit margins and high return on invested capital.
The company's gross margin rose by 380 basis points (bps) YoY to 56.5%, a result of a stable raw material basket and higher net realization. Furthermore, the EBITDA margin expanded by 250 bps YoY to 24.8%, reflecting efficient cost control measures. According to InvestingPro, Nestle operates with a high return on assets, which is evident in these results.
The prices of raw materials, such as maize, sugar, oilseed, spices, and green coffee, can be influenced by a variety of factors. For instance, winter flush helps stabilize milk prices, while uneven and deficit rains can impact prices. Nestle's ability to maintain a stable raw material basket, despite these fluctuations, is a testament to its strong position in the Food Products industry, as noted by InvestingPro.
In tandem with its financial results, Nestle India announced a share face value sub-division of rupee 1 per share. This strategic move is part of the company's broader plan to strengthen distribution, capacity building, and category expansion for in-home and out-of-home products.
While the results are positive, Nestle India maintains its earnings per share (EPS) estimates. The company is valued at 52 times the price/earning on its September 25 expected EPS with a 'Reduce' rating. The target price is set at Rs 20,000, indicating limited medium-term upside due to rich valuation. This aligns with InvestingPro's observation that Nestle is trading at a high P/E ratio relative to near-term earnings growth.
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