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Strong but in-line quarter

* Nestlé India (Nestle) sustained robust earnings growth momentum in 2QFY27. Net revenue grew 20% YoY (in line; 12% three-year CAGR) to INR67.8b. Domestic revenue grew 20% YoY to INR65b, primarily driven by volume growth. Growth was broad-based for all four product segments, supported by robust performance across channels. General Trade registered strong double-digit growth across town classes, led by rural markets, while ecommerce continued its strong trajectory. Export revenue increased 22% YoY.

* GM expanded 260bp YoY but contracted 30bp QoQ to 56.9% (beat) amid broadly stable RM prices. EBITDA margin expanded 160bp YoY to 23.8% (in line), supported by gross margin expansion and operational efficiencies. EBITDA grew 29% YoY to INR16.2b (in line).

* Nestle was one of the key beneficiaries of GST 2.0, which has supported its robust sales growth. While brand investments, distribution expansion, and broad-based demand continue to support growth, GST-led benefits will largely anniversarize 3QFY27 onwards, potentially moderating the current high growth momentum. We expect operating margin expansion to sustain in FY27 (+100bp YoY), supported by range-bound key raw material prices, operating leverage, and continued productivity initiatives.

* Nestle has delivered superior growth over the last four quarters following GST 2.0. We expect growth momentum to moderate on account of a high base, rising food inflation, and limited room for EBITDA margin expansion (already at ~24%). We model revenue/EBITDA/APAT CAGR of 11%/11%/12% over FY27-29E. The stock is trading at 52x/46x FY28/FY29 EPS. Given its rich valuation, we reiterate our Neutral rating with a TP of INR1,350 (based on 50x P/E Sept'28E).

Robust yet in-line print; double-digit volume growth

* Volume-driven revenue growth of 20%: Nestle registered net sales growth of 20% YoY (in line) to INR67.8b (est. INR67.9b) in 2QFY27. Domestic sales registered 20% YoY growth (15% two-year CAGR, 12% three-year CAGR) to INR65b, driven by double-digit volume growth. Exports grew 22% YoY to INR2.7b. Growth was broad-based across product groups, supported by robust performance across channels. General Trade registered strong double-digit growth across town classes, led by rural markets, while ecommerce continued its strong trajectory.

* Volume-led growth across all segments: Nestle continued to deliver broadbased volume-led growth across product groups. Confectionery recorded another quarter of strong double-digit growth. Powdered & Liquid Beverages delivered strong growth, supported by sustained household reach, enhanced affordability, and premiumization across the coffee portfolio. Prepared Dishes & Cooking Aids sustained growth through rural penetration. Milk Products & Nutrition reported strong, broad-based growth.

* Commodity prices remained stable in 2Q: The company’s gross margin expanded 260bp YoY but contracted 30bp QoQ to 56.9% (est. 56%) amid broadly stable RM prices. Going forward, the company expects coffee and wheat prices to remain range-bound, while sugar and edible oils have stabilized at elevated levels. Cocoa prices remain volatile due to weather-related crop concerns in key origins, while milk prices have strengthened seasonally but are expected to ease with the arrival of flush supplies.

* In-line profitability: Nestle continued to step up investments in its brands while maintaining a focus on operational efficiencies. Employee expenses grew 6% YoY, while other expenses increased 32% YoY. EBITDA margin expanded 160bp YoY to 23.8% (est. 23.7%, 22.2% in 2QFY26). EBITDA grew 29% YoY to INR16.2b (inline; est. INR16.2b). PBT grew 34% YoY (on a flat base) to INR14b (in line; est. INR14b), while adj. PAT grew 36% YoY (on a 3% decline in base) to INR10.1b (in line; est. INR10.3b)

Valuation and view

* We largely maintain our EPS estimates for FY27 and FY28.

* Nestlé has sustained strong double-digit revenue growth momentum since 2QFY26, supported by continued investments in brands, distribution expansion, and capacity augmentation. With a weak base gradually anniversaried, we believe growth rate can start moderating (on a double digit base) from 3QFY27 onwards. Besides, rising food inflation can taper down growth momentum going ahead.

* We model revenue/EBITDA/APAT CAGR of 11%/11%/12% over FY27-29E. The stock is trading at 52x/46x FY28/FY29 EPS. Given its rich valuation, we reiterate our Neutral rating with a TP of INR1,350 (based on 50x P/E Sept'28E).

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