Hold Nestle India Ltd For Target Rs.1,375 by InCred Equities
Today’s growth, tomorrow’s high base
* Nestle India posted 20.5% yoy sales growth in 2QFY27 led by 20.4%/22% yoy growth in domestic/export sales. Volume growth is estimated at ~12%.
* The low base tailwind is fading & Nestle India starts cycling a high base from 3Q. FSSAI action on infant formula and dairy whitener adds an overhang.
* We expect growth to normalise from 2HFY27F as the low base tailwind fades. We retain our HOLD rating on Nestle India with a lower TP of Rs1,375.
Another quarter of strong double-digit volume growth
Nestle India’s domestic sales in 2QFY27 grew by 20.4% yoy to Rs65.1bn, while exports grew by 22% yoy to Rs2.6bn. Volume growth came in around ~12%, vs. ~11% in 1QFY26 and in low single-digit through FY26. All categories pulled their weight. Confectionery led on volumes as Kitkat gained market share and festive bets such as the one done during Onam which drove Munch and Milkybar brands. Coffee Nescafe Classic and the relaunched Nescafe Sunrise fared well, Nescafe Gold grew in strong double digits and RTD was scaled up. Maggi deepened rural penetration, nutrition portfolio improved sequentially with toddler products gaining share, and pet food grew in double digits. Ecommerce channel saw strong growth, led by quick commerce. General trade posted double-digit growth across town classes.
Gross margin tailwind fades; margins likely to be rangebound
Gross margin expanded 260bp yoy (~30bp qoq) to 56.9% in 2QFY27, after six straight quarters of yoy decline up to 4QFY26. Part of the gains were reinvested, with other expenses up 30% yoy (+180bp at 24.7% of sales) on higher A&P spending. Management has flagged food inflation as a potential risk. Sugar & edible oils prices stable at elevated levels, cocoa is volatile and milk is seasonally firm, while coffee and wheat are rangebound. With advertising intensity remaining elevated, we see limited room for further margin expansion.
FSSAI cases on infant formula and other products add an overhang
In Sep 2026, FSSAI filed three cases against Nestle India over promotional claims on NAN Excella Pro and Lactogen Pro, and a formula that failed on biotin. In Oct 2026, it declared a low-fat dairy whitener sample unsafe in a dispute over phosphorus limits and for Celevida GLP+ over misleading health claims. Nestle India disputes these, and any potential fines are likely to be negligible in the overall scheme of things. The real drag, if any, will be a slower revival in nutrition, which had just started recovering sequentially.
Retain HOLD rating with a lower target price of Rs1,375
The GST cut-led volume boost has held up better than expected. But on a high base, where 2HFY26 sales were up +21% yoy vs +8.3% in 1HFY26, we expect the momentum to slow down. We retain our HOLD rating on Nestle India with a lower target price of Rs1,375 (65x Sep 2028F EPS), from Rs1,560 earlier. Upside risk: Sustained double-digit volume growth delivery despite a higher base going ahead. Downside risks: Demand slowdown and input cost volatility.
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