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Steady performance; cost savings boost EBITDA

* Nestle India (Nestle) reported a 4.5% YoY growth in total revenue in 4QFY25, in line with our estimate. Domestic sales grew only 4.2% YoY (vs. 9% growth in the previous eight quarters) given the macroeconomic headwinds. We believe volume growth was in the low single digit. Beverages and confectionery posted double-digit growth. Export revenue declined 9% YoY, hit by green coffee exports.

* GM contracted 60bp YoY/20bp QoQ to 56.2% (est. 55.8%). Management indicated that coffee and cocoa prices continued to be inflationary, while edible oil prices remained stable. EBITDA margin inched up 10bp YoY to 25.6% (est. 23.5%) driven by sharp cost-control measures. We model an EBITDA margin of 24.5% for FY26 and 25% for FY27.

* In FY25, beverage, pet care, and Out-of-Home (OOH) businesses delivered double-digit growth. Confectionery experienced high single-digit growth in both value and volume, primarily driven by KitKat. Meanwhile, Prepared Dishes and Cooking Aids achieved mid-single-digit growth, with Maggi reporting an increase in volume. Milk Products and Nutrition continued to do well, backed by new launches.

* Nestle has been a revenue growth outperformer over the past three years (largely due to price hikes), but growth has slowed in the last 4-5 quarters. Moderating urban consumption and high food inflation continue to pose risks to near-term recovery. The stock is trading at 66x/60x FY26/FY27 EPS. Given the stock’s expensive valuation, we reiterate our Neutral rating with a TP of INR2,400 (based on 60x P/E Mar'27E).

In-line revenue; EBITDA better than expected

* Domestic sales remain muted: Nestle’s total revenue rose 4.5% YoY to INR55b (est. INR55.1b) in 4QFY25. Domestic sales saw 4.2% YoY growth to INR52.3b, hit by subdued demand and higher commodity prices. Exports saw a 9% decline YoY to INR2.1b as commodity headwinds in green coffee impacted growth in coffee exports.

* Broad-based growth across categories: Nestle sustained broad-based growth across segments, though revenue growth was low. The growth continues to be driven by pricing and volume. The beverages and confectionery segment led with high double-digit growth, while the rest of the categories continued to do well during the quarter.

* Commodity pressure on margin: Gross margin dipped 60bp YoY to 56.2% (est. 55.8%) on rising RM prices. The management indicated that prices of coffee and cocoa continue to remain elevated while edible oil prices remain stable. Milk prices have cyclically firmed up with the onset of summer.

* Beat on EBITDA: Employee expenses rose 7% YoY, while other expenses were flat YoY. EBITDA margin expanded marginally by 10bp YoY to 25.6% (est. 23.5%, 23.4% in 3QFY25). EBITDA grew by 5% YoY to INR14.1b (est. INR 12.9b). Higher depreciation (+43% YoY) and higher interest (+43% YoY) coupled with lower other income (-68% YoY) hurt profitability. While PBT dipped 1% YoY to INR12.3b (est. INR11.6b), Adj. PAT declined 4.5% YoY to INR8.7b (est. INR8.7b).

* In FY25, net sales rose 3% YoY and EBITDA grew 1% YoY, while APAT dipped 4% YoY in FY24 (on a 12M comparable basis).

Valuation and view

* We largely maintain our EPS estimates for FY26 and FY27.

* The company has been focusing on its RURBAN strategy; hence, growth was higher in RURBAN markets. Most of Nestle’s categories have been reaping the benefits of distribution penetration. Packaged food penetration has improved in the tier-2 and rural markets. The company continues to focus on portfolio enhancement through ongoing innovation and premiumization initiatives.

* Nestle’s portfolio is relatively safe from local competition, so it does not need much overhead costs to protect its market share. However, with the ongoing inflation, it is critical to maintain margins. We model 24.5%-25% EBITDA margins for FY26/FY27.

* The stock is trading at 66x/60x FY26/FY27 EPS. Given its expensive valuation, we reiterate our Neutral rating with a TP of INR2,400 (based on 60x P/E Mar'27E).

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