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Recommendation Rationale

* Volume-Led Growth: Nestlé India reported 20.5% YoY revenue growth, driven by doubledigit volume expansion across key categories, although sequential growth moderated. Confectionery and beverages led growth, supported by sustained brand investments, while Prepared Dishes, Pet Food, and Milk & Nutrition continued to perform well. MAGGI noodles gained traction on the back of improved rural reach, while exports grew 22.0% YoY despite geopolitical headwinds. However, we expect growth to moderate going forward as the benefit of a favourable base tapers off.

* All-Round Performance Across Channels: The company reported double-digit growth in ecommerce, with quick commerce continuing to drive momentum. Organised trade also witnessed growth, supported by improved shelf space, network expansion and better in-store execution.

* Commodity Trends: Commodity prices are expected to remain broadly stable. Coffee prices are likely to trade within a narrow range amid limited near-term volatility. Sugar and edible oil prices have stabilised at elevated levels, indicating continued cost pressures. Cocoa prices remain volatile due to weather-related supply uncertainties across key producing regions. Meanwhile, milk prices have firmed up due to seasonal factors but are expected to moderate as increased milk availability during the flush season eases supply constraints.

* Inflation Remains a Key Concern: Management indicated that rising inflation, particularly food inflation, remains a key challenge. However, the company remains focused on mitigating commodity cost pressures through continuous innovation, sustained brand investments, and improvements in productivity and operational efficiencies.

Recommendation: While we remain optimistic about the company’s long-term prospects, expected growth moderation in H2FY27 and rising inflationary pressures remain key concerns. We have therefore cut our estimates but maintain our BUY rating with a TP of Rs 1,470, implying 15% upside from the CMP.

Financial Performance Nestlé India reported revenue of Rs 6,782 Cr in Q2FY27, up 20.5% YoY, driven by strong volume growth. Gross profit rose 26.4% YoY to Rs 3,858 Cr, with margins expanding by 267 bps YoY despite elevated prices. EBITDA increased 30.6% YoY to Rs 1,615 Cr, with margins expanding 186 bps YoY to 23.8%. PAT came in at Rs 1,027 Cr, reflecting ~36% YoY growth.

Outlook

We remain constructive on Nestlé India’s long-term prospects, supported by improving consumption trends and the potential demand boost from GST 2.0 reforms. Growth will be driven by deeper rural penetration through the RURBAN strategy, continued innovation, premiumisation across core categories, and expansion into emerging segments such as Nespresso, Purina Pet Care and Gerber’s toddler nutrition. The D2C platform and growing nutraceutical portfolio are expected to further strengthen consumer engagement and unlock growth opportunities. However, we expect growth to moderate in H2FY27, while rising inflationary pressures remain a key near-term concern.

Valuation & Recommendation

We expect Nestle's Sales, EBITDA, and PAT to grow at CAGRs of 14%, 13%, and 11% over FY25-FY28E, respectively. We maintain our BUY stance with a TP of Rs 1,470/share, representing a 15% upside from the CMP.

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