Nestlé India sustains volume-led growth and resilient margins despite input inflation

Investment View and Recommendation

JM Financial’s October 15, 2026 result update on Nestlé India retains an ADD recommendation following a Q2FY27 earnings performance that was largely in line with both JM Financial’s and consensus estimates. The broker views Nestlé India’s execution as superior, citing sharp acceleration in growth and profitability over the past four to five quarters through GST rate rationalisation, distribution expansion, premiumisation and innovation.

JM Financial considers Nestlé India well placed to manage volatile commodities because of its portfolio strength and pricing power.

Q2FY27 Sales Performance

Nestlé India reported Q2FY27 net sales of Rs 67,822 million, up 20.5 per cent year on year and 0.8 per cent above JM Financial’s estimate of Rs 67,281 million. Domestic sales rose 20.4 per cent year on year, while exports increased 22 per cent, supported by portfolio expansion and market development.

The sales outcome was driven by robust double-digit volume growth, which JM Financial estimated at 14 to 15 per cent. H1FY27 net sales rose 22.8 per cent year on year to Rs 1,31,454 million.

Category and Channel Growth

Growth was broad based across categories and channels. Prepared Dishes and Cooking Aids benefited from MAGGI’s rural expansion, while Pet Food maintained strong double-digit momentum and strengthened its cat-food portfolio. Milk Products and Nutrition grew through brand investment and portfolio optimisation, with sequential improvement in Nutrition.

Confectionery delivered volume-led double-digit growth, aided by market-share gains in KITKAT and momentum in MUNCH and MILKYBAR. NESCAFÉ beverages benefited from broader household reach, affordability, premiumisation and ready-to-drink offerings. Nestlé Professional also recorded double-digit volume-led growth.

Organised trade, including e-commerce, remained strong, while general trade grew at a double-digit pace led by rural markets.

Profitability and Input-Cost Outlook

Profitability remained resilient despite raw-material inflation and a 46 per cent year-on-year increase in advertising and promotion expenditure. Q2FY27 gross profit rose 26 per cent to Rs 38,578 million, and gross margin expanded 267 basis points year on year to 56.9 per cent, above JM Financial’s 56.0 per cent estimate, supported by productivity and operational efficiencies.

EBITDA increased 30.6 per cent to Rs 16,155 million and EBITDA margin rose 186 basis points to 23.8 per cent, broadly in line with estimates. Adjusted profit after tax grew 36.7 per cent to Rs 10,295 million.

Management expects coffee and wheat prices to remain range-bound, sugar and edible oils to remain settled but high, cocoa to stay volatile because of weather-related crop concerns, and milk prices to ease with flush-season supply. JM Financial expects productivity measures and calibrated price actions to mitigate input-cost pressure.

Earnings Outlook and Estimate Changes

JM Financial expects reported sales growth to look lower in H2FY27 than in H1FY27 because of the base effect rather than any weakening in Nestlé India’s fundamentals. Festive demand and the ability to sustain volume momentum are key variables to monitor.

The broker raised FY27E sales by 1.1 per cent and EBITDA by 0.6 per cent, but reduced FY28E and FY29E EBITDA by 0.8 per cent and profit after tax by 1.4 per cent.

Valuation and Target Price

The target price was cut to Rs 1,450 from Rs 1,610, despite the maintained ADD rating, because JM Financial reduced its target valuation multiple to 58 times from 65 times amid broader sector de-rating.

The report notes that the stock had corrected more than 15 per cent over the preceding two months and that its next-twelve-month valuation was below the ten-year average.

Key Risks

• Commodity-cost volatility, especially cocoa and elevated sugar and edible-oil prices.
• Failure to sustain festive demand or strong volume growth.