Nestlé India Q1FY27 Review: Strong Growth & Accumulate Rating

Nestlé India (Nestlé) delivered another strong quarter; outperforming consensus estimates with revenue growth of 25.2% YoY (highest in the past 40 quarters) at Rs 63.8bn. The performance was driven by strong double-digit growth in all four key product groups, supported by high double-digit growth across channels.  Further, the domestic business recorded 25.0% YoY growth, while exports surged 35.6% YoY, the strongest performance in the past 50 quarters, regardless of continued geopolitical headwinds. Despite continued volatility in commodity prices, the company reported expansion in both GM and EBITDAM to 57.2% and 24.1%, respectively. supported by improved operating efficiencies, a favorable product mix and disciplined cost management initiatives. With better-than-expected performance across all key parameters, we expect Nestlé to deliver sustained earnings growth, supported by healthy volume-led demand, deeper market penetration, continued premiumization, capacity expansion and ongoing product innovation. In addition, disciplined cost management and operational efficiencies are likely to support a strong margin profile despite commodity cost volatility. Accordingly, we initiate coverage on Nestlé India with an 'Accumulate' rating. Valuing the stock at 65x FY28E EPS, we arrive at a target price of Rs. 1,604. Buy on dips.

Nestlé India (Nestlé) Ltd. Stock Price Chart

Q1FY27 Performance

Result ahead of consensus estimates: Net sales stood at Rs 63.8bn, up 25.2% YoY (base of 5.9% growth). On 5 yr CAGR basis, revenue increased 12.9%. GM expanded by 210bps YoY to 57.2%. A 210/120bps decrease in RM cost/employee cost was partially offset by 70bps increase in other expenses, leading to EBITDAM expansion of 250bps YoY to 24.1%. EBITDA grew by 39.8% YoY to Rs 15.4bn and APAT surged 48.9% YoY to Rs 9.8bn.

Segmental Performance

During the quarter - Confectionery recorded volume-led double-digit growth driven by premiumisation and strong e-commerce traction. Powdered & Liquid Beverages marked its 20th consecutive quarter of double-digit growth, supported by higher coffee penetration and premiumisation. Milk Products & Nutrition delivered broad-based growth led by healthy volumes and strong execution. Prepared Dishes and Cooking Aids posted strong double-digit growth driven by urban demand, rural expansion and innovation. Pet Food continued its strong double-digit growth, supported by portfolio expansion, wider distribution and higher consumer engagement.

Outlook

We remain positive on Nestlé India, supported by its focus on penetration-led volume growth, premiumization, brand investments and continued expansion across MT, E-com and Q-com channels. Strong execution, capacity expansion and innovation should sustain healthy revenue growth with double-digit volume growth over the medium term. Though in a volatile macro environment, the company delivered a healthy margin performance, near-term margins may witness some pressure due to inflation in milk, edible oils, cocoa, sugar and proteins. Nevertheless, we believe that the company would maintain margins in 24-25% range led by cost saving and operating efficiency. Higher brand investments, with advertising spends would remain elevated but operating efficiencies are expected to mitigate the increase.

Valuation

We forecast Revenue/EBITDA/PAT CAGR of 13/15/14.6% over FY26–FY28E. Despite rich valuations, we believe the premium is justified by the company's strong brand portfolio, consistent execution and superior earnings visibility. We value the stock at 65x FY28E EPS to arrive at a TP of Rs 1,604. Initiate with ‘Accumulate’.

Company website: https://www.nestle.in/

Click to download the full Nestlé India Q1FY27 Review Analysis

Analyst:

• Sachin Bobade - HOR, Institutional Equities
• Akshay Patel - Senior Research Associate, Institutional Equities

Open your MNCL Demat Account

Frequently Asked Questions (FAQs) – Nestlé India Q1FY27 Result

1. Why did Nestlé India report strong Q1FY27 results?

The company benefited from strong double-digit growth across major product categories, healthy domestic demand, export growth, premiumisation, wider distribution and effective cost management.

2. What supported Nestlé India's margin expansion?

Gross and EBITDA margins improved due to favourable product mix, lower raw material cost impact in certain categories, operating efficiencies and disciplined cost management initiatives.

3. What are the key growth drivers for Nestlé India?

Future growth is expected to be supported by premiumisation, deeper market penetration, capacity expansion, product innovation, expanding modern trade, e-commerce and quick commerce channels.

4. What risks could affect Nestlé India's performance?

Key risks include volatility in milk, cocoa, edible oil, sugar and protein prices, along with inflationary pressures that may impact profitability despite ongoing efficiency initiatives.

5. Why has the research initiated coverage with an Accumulate rating?

The institutional research highlights strong earnings visibility, a premium brand portfolio, consistent execution and sustainable long-term growth, while noting that current valuations may limit immediate upside.