Accumulate Nestle India Ltd For Target Rs. 1,504 - Prabhudas Liladhar Capital Ltd
Strong volume led growth continues
Quick Pointers
* Rating upgrade to Accumulated backed by 6.2/4.4% upgrade in EPS
* Expect strong momentum in 1H27 given benefits of GST and softer prices of Coffee and cocoa
We raise our FY27/FY28 estimates by 6.2/4.1% and rating to Accumulate driven by 1) 7% sales beat in 4Q26 2) benefits of GST rate cuts 3) improved availability due to capacity expansion.
Nestlé delivered a strong quarter, reporting 22.6% YoY revenue growth and 27.5% YoY EBITDA growth, with margins expanding 101 bps led by operating leverage despite elevated input costs (SMP & palm oil). We expect sales momentum to sustain in 1H27 given relatively low base although 4Q26 growth numbers are unlikely (panty loading). NEST will also benefit from lower prices of coffee (down 25% from peak) and cocoa in FY27, even as palmoil and packaging costs will increase.
We expect NEST to sustain double digit growth led by 1) innovations 2) distribution expansion and 3) benefits of INR50bn capacity expansion over past few years. We estimate an EPS CAGR of 14.3% over FY26–28. The stock currently trades at 59.5x FY28 EPS. We remain positive operationally and raise DCF-based target price to INR1,504 (INR1,379 earlier).
Sales increased 22.6%, Adj PAT up 28.9% YoY: Revenues grew by 22.6% YoY to INR67.5bn (PLe: INR63.3.7bn) with domestic/ export sales up by 1.2%/ 3.1%. Gross margins contracted 48bps YoY to 55.7% (Ple: 56.0%). EBITDA grew 27.5% YoY to INR17.7bn (PLe:INR 14.88bn); Margins expanded 102bps YoY to 26.3% (PLe:23.5%). Adjusted PAT grew 28.9% YoY to INR11.4bn (PLe:INR 9.5bn).
Segment-wise Performance – Beverages posted double-digit growth led by coffee portfolio, Prepared Dishes and Cooking Aids- registered strong volume driven growth with expanding rural reach and innovations such as “Double Masala” and “Spicy Range”, Confectionary- strong double-digit growth and innovations like KITKAT salted Caramel and Hazelnut, KITKAT pops and MILKYBAR Butterscotch tablets. Milk Products – Steady growth led by Everyday Dairy Whitner, although lower than other segments.
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SEBI Registration number is INH000000933
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