The brokerage now has an “underperform” rating on the stock from the previous “neutral” rating and has cut its price target to ₹2,140 per share from the previous ₹2,315 apiece. This revised price target implies 4.2% downside from the previous closing price of ₹2,234 per share.
BofA Securities wrote in its note that a combination of soft demand trends, cost pressures and aggression from multiple players makes the operating environment challenging and should affect Nestle India in the near-term.
It said the pricing can remain a key growth driver amid sharp inflation in commodities such as coffee, cocoa etc, which impact 30% of the company’s portfolio.
The brokerage expects some volume recovery from a low base, but said the overall growth is likely to remain modest.
“With a rapidly changing consumer landscape and competitive dynamics, the company will have to tightly balance growth and margin mid-term; we think operating margin is capped and can move a tad lower,” the BofA Securities note said.
The brokerage also added the Nestle India’s valuation is elevated in context to the company’s growth outlook and its peer group.
Nestle India’s earnings estimates have been cut by 3% to 5% by BofA Securities to factor in the recent trends and cost push.
Of the 39 analysts that have coverage on the stock, 11 have a “buy” rating, 19 have a “hold” rating and nine have a “sell” rating.
Nestle India shares were down 2.11% at ₹2,186.8 apiece at 10.35 am on Wednesday, April 2. The stock has declined 18.2% in the last six months.
Also Read: PSU Stocks Crash: Sell-off continues in Central Bank of India, Punjab and Sind, IOB shares