Nestlé India sustains volume-led growth, but high base and food inflation temper outlook

Investment View and 2QFY27 Summary

Motilal Oswal Financial Services' October 15, 2026 results update on Nestlé India retains a Neutral rating and describes 2QFY27 as a strong but in-line quarter. The broker believes Nestlé India has sustained strong double-digit revenue momentum since 2QFY26 through brand investments, distribution expansion and capacity augmentation.

However, growth is expected to moderate from 3QFY27 as the weak comparison base is gradually anniversarised. Rising food inflation could also weaken growth momentum.

Revenue Growth and Product Performance

Nestlé India reported net revenue growth of 20% year-on-year in 2QFY27 to Rs 6,780 crore, broadly in line with Motilal Oswal's estimate of Rs 6,790 crore. Domestic revenue rose 20% to Rs 6,500 crore, led by double-digit volume growth, while exports increased 22% to Rs 270 crore.

Growth was broad based across all four product groups and channels. General Trade recorded strong double-digit growth across town classes, led by rural markets, while e-commerce maintained a strong trajectory. Confectionery delivered another quarter of strong double-digit growth.

Powdered and Liquid Beverages benefited from sustained household reach, affordability initiatives and premiumisation in coffee. Prepared Dishes and Cooking Aids grew through rural penetration, while Milk Products and Nutrition delivered strong broad-based growth.

Margins, Costs and Raw-Material Environment

Reported gross margin expanded 260 basis points year-on-year to 56.9%, beating Motilal Oswal's 56.0% estimate. However, gross margin declined 30 basis points sequentially amid broadly stable raw-material prices.

Management expects coffee and wheat prices to remain range-bound. Sugar and edible oils have stabilised at elevated levels, while cocoa remains volatile because of weather-related crop concerns in key origins. Milk prices have strengthened seasonally but are expected to ease with flush supplies.

Nestlé India continued to increase brand investments while pursuing operational efficiencies. Employee expenses rose 6% year-on-year and other expenses increased 32%. EBITDA margin expanded 160 basis points year-on-year to 23.8%, in line with the broker's 23.7% estimate, while EBITDA grew 29% to Rs 1,620 crore.

PBT rose 34% to Rs 1,400 crore and adjusted PAT increased 36% to Rs 1,010 crore, both broadly in line with estimates. Motilal Oswal expects FY27 operating margin to expand by 100 basis points, supported by range-bound key raw-material prices, operating leverage and productivity initiatives.

Growth Outlook and Estimates

Motilal Oswal notes that Nestlé India was a key beneficiary of GST 2.0, which supported recent sales growth. Brand investment, distribution expansion and broad-based demand remain supportive, but GST-related benefits will largely anniversarise from 3QFY27.

The broker largely maintains its FY27 and FY28 EPS estimates, with modest increases in EBITDA and adjusted PAT estimates. It forecasts revenue, EBITDA and adjusted PAT compound annual growth of 11%, 11% and 12%, respectively, over FY27 to FY29E.

Valuation and Recommendation

Motilal Oswal's target price of Rs 1,350 is based on 50 times September 2028 estimated earnings per share. The broker retains its Neutral rating because the stock trades at 52 times FY28 and 46 times FY29 estimated earnings per share, which it considers a rich valuation.

The broker expects limited scope for further EBITDA-margin expansion because margins are already near 24%.

Key Risks

• Growth slowing from a high base.
• Food inflation weakening growth momentum.
• Volatile cocoa prices because of weather-related crop concerns.
• Constrained potential for further margin expansion.