Nestlé India volume-led growth and margin gains continue, but valuation remains expensive

Investment View and Valuation

Nestlé India delivered another robust 1QFY27, with broad-based volume growth and profitability exceeding Motilal Oswal Financial Services’ (MOFSL) expectations. Despite raising its earnings estimates, MOFSL retained its Neutral rating because it considers the stock’s valuation expensive.

MOFSL revised its target price to Rs 1,525, based on 60 times March 2028 estimated earnings per share. The stock was trading at 68 times FY27E and 60 times FY28E earnings per share.

1QFY27 Financial Performance

Nestlé India reported total sales of Rs 6,378 crore in 1QFY27, up 25 per cent year on year and above MOFSL’s estimate of Rs 6,036 crore. Domestic sales increased 25 per cent to Rs 6,070 crore, while exports rose 36 per cent to Rs 290 crore.

Growth was predominantly volume-led, with limited price increases. All four product groups delivered strong double-digit growth, supported by GST 2.0 benefits, particularly for low-unit-price and serve-for-one products, along with continued investment in brands, distribution and capacity augmentation.

Category and Channel Performance

Confectionery: Growth was supported by transactions, premiumisation, e-commerce and market-share gains in KITKAT.

Prepared Dishes and Cooking Aids: Performance benefited from urban demand, rural expansion, innovation-led market-share gains and higher penetration.

Powdered and Liquid Beverages: The category recorded its 20th consecutive quarter of double-digit growth, driven by coffee penetration, premiumisation and wider distribution.

Milk Products and Nutrition: The category delivered broad-based growth from underlying volumes, digital activation and portfolio refinement.

Pet Care: Strong double-digit growth was supported by portfolio expansion, wider distribution and consumer engagement. Nestlé India launched FELIX Gravy Lover and PRO PLAN Cat.

Other businesses: NESPRESSO expanded through retail formats in Delhi NCR, Mumbai and Bengaluru, while Nestlé Professional maintained double-digit volume-led growth.

Profitability and Margins

Profitability exceeded MOFSL’s estimates. Gross margin expanded 205 basis points year on year and 155 basis points quarter on quarter to 57.2 per cent, compared with the broker’s estimate of 55.5 per cent. The improvement was aided by broadly stable raw-material prices.

EBITDA increased 40 per cent year on year to Rs 1,538 crore, above MOFSL’s estimate of Rs 1,359 crore. EBITDA margin expanded 250 basis points to 24.1 per cent, compared with the estimated 22.5 per cent. Operational cost savings and operating leverage supported margins despite advertising expenditure rising more than 40 per cent year on year.

Employee expenses increased 10.5 per cent and other expenses rose 29 per cent. Adjusted profit after tax increased 49 per cent year on year to Rs 963 crore, against MOFSL’s estimate of Rs 840 crore.

Growth Outlook and Strategic Initiatives

MOFSL expects general trade to maintain strong double-digit growth as rural distribution expands, while alternate channels should remain robust. E-commerce growth is supported by quick commerce, product availability, platform-specific packs and media investment.

Export initiatives include MAGGI noodle variants in Canada, larger sauce packs for HoReCa, a wider MAGGI range in Europe, and NESCAFÉ Sunrise exports to Lebanon following launches in the UAE and Saudi Arabia.

Earnings Estimates and Key Risks

MOFSL raised its FY27E and FY28E earnings per share estimates by 4–6 per cent. Its revised forecasts imply FY26–FY28E revenue, EBITDA and adjusted profit after tax compound annual growth rates of 14 per cent, 17 per cent and 20 per cent, respectively. The broker expects more than 100 basis points of EBITDA-margin expansion in FY27.

Key risks to the outlook include growth moderation from 3QFY27 as a weak base is anniversarised and mixed commodity conditions. Cocoa, sugar and protein inputs face inflationary pressure. Coffee is expected to remain well supplied but may be volatile due to weather. Edible oils remain elevated but stable, while wheat and milk are expected to remain range-bound.