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Nestle – The bull run continues

Nestle India, a F&B conglomerate, with leadership in almost 85% of products in their portfolio. Nescafe, Maggi, Milkybar, Milo, Milkmaid, and Nestea some of the many brands under the Nestle umbrella without which our very childhood would seem incomplete.

Despite the slowdown in rural demand for FMCG products, Nestle’s revenue growth is likely to continue on account of its strong brand image, new product launches which will increase demand and its continuous efforts to further penetrate the markets.

In Q1CY19, the company’s top line grew by almost 9% YoY aided by growth in domestic demand on account of new products being launched. While EBITDA and PAT increased by 10% and 9% respectively. Operating profit margins bounced back to 25% this quarter as compared to last quarter which was at 19%. Although margins were impacted due to higher cost of raw materials.  In the last 2 years, the company has launched 39 new products out of which 25 products were sustainable. They are now planning to enter the organic products market with its upcoming Ceregrow Organic Selection range of cereals.

The company’s 3 years ROE is 38.60% and is virtually debt free. They also have a healthy dividend payout ratio of 65.78%.

Nestle has been in a tremendous bull run for over two decades now. Even during the 2008 fall, the stock fell a mere 38.2% of the major swing. A stock that doesn’t correct more than 38.2% of a major swing is in a tremendous bull run. The recent fall in Sep-18 was again a mere 38.2% of the swing from 5006 levels. Therefore the strong trend in the counter continues. The Sep-18 fall to 9152 also happens to be the confluence zone and hence strong support. The counter reversed the fall from the lows and retested the highs at 11705 several times.  Since the stock has hit the highs several times the probability of the counter breaking the zone now is very high. For a decade the RSI has been oscillating between 40-80 and that means the bull trend has been intact for years now. In the current run up the RSI went above 80 and on the correction has taken the 60-65 zones as support and is now breaking above the shorter moving average which is very positive. The Fibonacci extension is indicating a confluence zone of 13204-13508 which is some 15 percent from the current levels. Please note that the stock is now breaking out and will need to stay on a monthly basis above the break out the zone of 11705 for a confirmation of a valid breakout. But since the trend is very strong the probability is very high that the stock will sustain above the zone post-breakout.

This Post Has One Comment
  1. Article on Nestle stock is very beautifully analysed. Since my father has purchased this stock during IPO , I know it’s credentials very well. It is 5 star rated company . Only my question is that how to add these shares. As I have traded several times to its support level but eventually not gained much in this. sometimes stoploss got triggered stock come to slightly low level than stoploss level & then continuously bounced back for next 2 – 3 sessions. so my question is that how to accumulate this stock. which is the best level to start accumulating this company’s share?

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