Over 3,000% returns! This FMCG major turned Rs 10,000 into Rs 3.25 lakh in 20 years

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Maggi-maker Nestle India is among one of the biggest wealth creators on Dalal Street. The scrip of the FMCG major has rallied 3,158% in the past 20 years – from Rs 524.40 in April 2001 to Rs 17,086.23 on April 20, 2021. This rise shows that an investment of Rs 10,000 in 2001 in Nestle would have turned into Rs 3.23 lakh today.

However, shares of the company have underperformed other FMCG majors amid the ongoing Covid-19 uncertainty. The scrip has gained 26% since March 2020 lows, while other FMCG majors, including Britannia, ITC and Emami and Godrej Consumer, gained between 36%-237% during the same period. On the other hand, Hindustan Unilever gained 18%.

Financials

Gross sales of the company have grown around 11% annually to Rs 13,290 crore during the past 20 years. On the other hand, net profit increased by over 15% to Rs 2,082.43 crore from Rs 118.6 crore in 2000. Of late, the company last week reported a 14.62% growth in its net profit to Rs 602.25 crore for the quarter ended in March 2021 driven by an increase in sales volume of its key products.

The company, which follows January-December financial year, had posted a profit of Rs 525.43 crore in the same period a year ago. Its net sales were up 8.9% to Rs 3,600.20 crore during the period under review as against Rs 3,305.78 crore in the corresponding period last fiscal. Market watchers hold a mixed view on Nestle after the recent quarterly results.

Should you invest?

Brokerage firm Edelweiss Securities maintained a ‘Buy’ call on Nestle with a price target of Rs 21,110. “With the second wave of the pandemic hitting the country, we expect Nestle to be a big beneficiary of a spike in in-home consumption. Overall, the company’s high innovation, ‘premiumisation’ agenda and cluster-based distribution strategy are on track, and we expect this to sustain,” Edelweiss Securities said,

Likewise, Sharekhan has retained a ‘Buy’ rating on Nestle with an unchanged price target of Rs 19,055, as its domestic business grew by 10.2%. It highlighted that barring Q2CY2020, the domestic business achieved double-digit growth in the past eight quarters. The brokerage further said that the company has a strong brand portfolio in the packaged food and beverages space, which will help it achieve good growth at a time when consumers are shifting to trusted brands and rural aspirations are improving, thereby boosting overall penetration.

On the other hand, HDFC Securities has a ‘Reduce’ call on Nestle with a price target of Rs 16,326. The brokerage house is of the opinion that higher advertising and sales promotion limited the EBITDA margin expansion. Also, the rich valuation that the stock gives a limited room for absolute upside in the medium term, thereby making the risk-reward unattractive.