>Nestle India (CITI)

*4QCY08 was above expectations... — Reported PAT growth of 29% Y/Y, driven by strong revenue growth of 22% Y/Y (in line with expectations) and c2% expansion in EBITDA margins (to 19.5%, benefiting from a benign base effect).

*...But we reckon the outlook is challenging — Nestlé India's growth is predicated off urban consumption spends – which contract in an economic downturn. Revenue growth over CY07/08 of ~23% CAGR, above the ~15% CAGR witnessed over the last 5 years, benefited from strong pricing. We reckon an encore performance over CY09/10e will be difficult as pricing action moderates.

* History depicts Nestlé's business model as robust, not bullet proof — Revenue growth decelerates to is less than 10% in economic downturns – as urban consumption decelerates. The steady growth milk foods / nutrition business stays the course; prepared and processed foods growth contracts dramatically. We expect revenue growth to decelerate to 11%-12% over CY09/10e, before accelerating in CY11e.

* Cut target price to Rs1,395, maintain Sell — We cut earnings by 2%-14% over CY09/10e (driven by 3%-10% reduction in revenues over CY09/10e). We revise our target multiple to 21x Mar10e P/E, cut from 25x, as we roll forward from Sept09e, revise downward in line with the peers and also the broader market.

* Key risks — Upside risks stem from stronger revenue growth, margin expansion driven by lower commodity costs.

To see full report: NESTLE