Religare Institutional Research has maintained 'Sell' on Nestle India with target price of Rs 4,850 in its report.

Commenting on the rationale, the broking firm said, "Nestle's Q2CY14 net sales grew 9.3% YoY to Rs 24.1 billion led by a 9.7% YoY growth in the domestic business, with exports reporting a moderate 4.1% YoY growth due to lower exports to affiliates. Domestic sales recovered during the quarter driven by price hikes, mix improvements and likely volume growth in select product categories. We estimate a flattish volume growth for the quarter.

EBITDA was flat YoY at Rs 4.78 billion, with margins contracting 180bps YoY to 19.8% (45bps above RCMLe). Gross margins were down 240bps YoY on input cost pressures (largely milk and its derivatives). As a percentage of sales, other expenses declined 60bps YoY while employee expenses remained flat YoY at 8.6%. Other income was up 45% YoY to Rs 362 million due to higher yields on the cash balance. Interest costs were down 55% YoY to Rs 38 million as the company repaid USD 157 million of the total USD 192 million of ECBs outstanding from Nestle SA during the quarter (balance USD 35 million have also been paid in July). The tax rate declined 60bps YoY to 32.4%. Adjusted PAT was up 6% YoY to Rs 2.88 billion."

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