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Another robust quarter; valuation remains expensive

* Nestlé India (Nestle) reported strong performance in 1QFY27, with revenue growing 25% YoY (beat; 13% three-year CAGR) on a base of 6%. Domestic revenue grew 25% YoY (vs est. 19%), primarily driven by volume growth. GST-driven benefits continue to support volume growth (more sensitive for LUPs and serve-for-one products). All four product groups delivered strong double-digit, volume-driven growth. The growth was equally balanced with high double-digit expansion across channels. Export revenue increased 36% YoY.

* GM expanded 205bp YoY and 155bp QoQ to 57.2% (beat), given the stable RM prices. EBITDA margin expanded 250bp YoY to 24.1% (beat), driven by cost savings and operating leverage. EBITDA rose by robust 40% YoY to INR15.4b (beat), driven by a favorable base of -2%.

* Post GST 2.0, we have consistently highlighted food companies as the biggest beneficiaries. Nestle has emerged as an outlier with exceptional volume-driven performance (ITC FMCG growth at 14% in 2HFY26), delivering 25% of revenue growth, a rare sight in FMCG (unseen across companies in the last multiple years). We expect operating margin expansion to sustain in FY27 and build in >100bp EBITDA margin expansion.

* We model revenue/EBITDA/APAT CAGR of 14%/17%/20% over FY26-28E. The stock is trading at 68x/60x FY27/FY28 EPS. Given its expensive valuation, we reiterate our Neutral rating with a revised TP of INR1,525 (based on 60x P/E Mar'28E).

Volume-driven growth; beat on all fronts

* Revenue growth at 25%: Nestle’s net sales rose by a strong 25% YoY (beat) to INR60.7b (est. INR57.6b) in 1QFY27. Domestic sales registered 25% YoY growth (15% two-year CAGR, 13% three-year CAGR) to INR61b, while exports rose 36% YoY (to INR2.9b). All four product groups delivered strong double-digit, volume-driven growth, supported by high double-digit expansion across channels. Nestle has sustained strong double-digit revenue growth momentum since 2QFY26, supported by continued investments in brands, distribution expansion, and capacity augmentation.

* Volume-led, double-digit growth across all segments: Nestle’s 25% revenue growth was primarily driven by volume growth, as price hikes were limited. Confectionery continued to witness robust transaction-led growth, aided by premiumization, e-commerce, and market share gains in KITKAT. Prepared Dishes & Cooking Aids registered another quarter of strong growth, supported by urban demand, rural expansion, and innovation-led gains in market share and penetration. Powdered & Liquid Beverages delivered its 20th consecutive quarter of double-digit growth, driven by higher coffee penetration, premiumization, and expanding distribution, while Milk Products & Nutrition reported broad-based growth, backed by underlying volume growth, digital activation, and portfolio refinement.

* Commodity prices to remain mixed: The company’s gross margin expanded 205bp YoY and 155bp QoQ to 57.2% (est. 55.5%), given the broadly stable RM prices. Going forward, Nestle expects commodity trends to remain mixed. Coffee is expected to remain well supplied despite near-term weather-led volatility, while cocoa, sugar, and protein inputs continue to face inflationary pressures, driven by supply constraints and robust demand. Edible oil prices remain elevated but stable, whereas wheat and milk are expected to remain broadly range-bound.

* Beat on profitability: Nestle further accelerated its operational cost-saving initiatives during the quarter while continuing to step up investments in its brands, with advertising spends increasing over 40% YoY. Employee expenses grew 10.5% YoY, and other expenses grew 29% YoY. EBITDA margin expanded 250bp YoY to 24.1% (est. 22.5%, 21.6% in 1QFY26). EBITDA grew by a robust 40% YoY to INR15.4b (est. INR 13.6b) on a favorable base of -2%. PBT grew 48% YoY (on 11% decline in base) to INR13.3b (est. INR11.4b), while adj. PAT grew 49% YoY (on a 12% decline in the base) to INR9.6b (est. INR8.4b).

Valuation and view

* We raise our EPS estimates by 4-6% for FY27 and FY28.

* Nestle has sustained its strong double-digit revenue growth momentum since 2QFY26, supported by continued investments in brands, distribution expansion, and capacity augmentation. In our view, 1Q growth was further supported by calibrated price hikes, stable RM prices, and GST 2.0-led tailwinds.

* With the weak base gradually getting anniversaried, we expect the growth rate to moderate (on a double-digit base) from 3QFY27 onwards. That said, general trade is expected to continue delivering strong double-digit growth with continued rural distribution expansion, while alternate channels are likely to maintain robust growth momentum. Moreover, commodity trends remain mixed, with persistent inflation in cocoa, sugar, and protein inputs offset by stable trends in coffee, edible oils, wheat, and milk.

* We model revenue/EBITDA/APAT CAGR of 14%/17%/20% over FY26-28E. The stock is trading at 68x/60x FY27/FY28 EPS. Given its expensive valuation, we reiterate our Neutral rating with a revised TP of INR1,525 (based on 60x P/E Mar'28E).

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