IGI Logo

Focus on volume led growth amidst El Nino overhang

Nestle India analyst reinforced our confidence in the company sustaining strong double-digit sales growth over medium term. NEST growth strategy is centered on

1) Low penetration of 37/33/23% in Instant Noodles, Coffee and Wafer chocolates

2) significant scope to increase rural distribution (4x direct increase since 2020)

3) gaining traction in Ecom/QC with higher growth, premium salience and new launches 

4) rising share of premium products in total sales (up 300bps to 14%, 17% CAGR since 2021). NEST seems well placed to gain from adequate capacities (Rs64bn capex completed), benefits of global innovation, strong brands and strong supply chain.

While we expect growth rates to moderate in coming quarters as high base catches up and inflation hurts consumer wallet, sustaining double digit growth does not seem an issue. we expect limited room for margin upside as super El Nino might result in higher prices of Cocoa, Coffee and palmoil in coming quarters. We expect a Sales/ EPS / PAT CAGR of 14.2%/ 17.8%/ 17.8% respectively. The stock currently trades at 61.8x FY28 EPS and will likely give back ended returns given rich valuations. Retain Accumulate

Analyst Meet Takeaways:

1) Nestle has done a capex of Rs.64bn between 2020 to 2026 increasing capacity of Maggi, Coffee and Chocolate by 41%

2) Nestle currently has retail distribution reach of 6.2 million outlets with 0.5mn retail outlets added since 2023

3) NEST will follow a premiumization and penetration driven strategy to push for growth

4) Nestlé India's product mix continues to skew favorably toward premium offerings, with the premium portfolio delivering a 17% CAGR since 2021, outpacing overall company growth by ~500 bps. This sustained premiumization trend has lifted premium products contribution to total revenue to 14% in FY26

5) NEST expects significant headroom in its Maggi,

6) Coffee and Chocolates categories led by low penetration

7) Nescafé recorded its 20th consecutive quarter of double-digit growth in 1Q, underscoring resilient momentum as coffee culture gains ground in India. With coffee penetration at just 33% versus tea's 91%.

8) Ad spend has increased to Rs12.2bn in FY26 (5.3% of sales) from Rs7bn in FY22 (4.1% of sales), with recent quarters seeing a sharp acceleration of >40% YoY. The management has guided for ad spend intensity to increase further, underscoring continued investment behind brand building and premiumization.

9) NEST may face some near-term macro headwinds; it however remains constructive on its medium to long-term growth, underpinned by structural drivers such as premiumization and penetration led category expansion.

10) The OOH consumption occasions is expected to increase to 8 by FY30 from 5 in FY25

Please refer disclaimer at https://www.plindia.com/disclaimer/

SEBI Registration No. INH000000271