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Growth priorities continue; near-term consumption challenges

Nestlé India (NEST) hosted its Analyst Meet 2026, outlining its growth journey and the key focus areas going forward. Management reiterated that the company is well positioned to capitalize on India's structural growth opportunities by remaining consumer-centric in a rapidly evolving marketplace. Growth will be driven by a dual engine of core category expansion and premiumization. Management has laid out five strategic pillars going forward:

1) Growth through penetration-led volumes and premiumization

2) Cost efficiency through value chain optimization

3) Continued investments in brands and capacity expansion

4) Digital acceleration across sales and operations

5) Profitability backed by disciplined margins and cash generation.

* NEST remains constructive on India's long-term growth opportunity, supported by a rapidly expanding affluent consumer base and low packaged food penetration. Management highlighted that Elite households are expected to increase from 18m in 2025 to 40m by 2034, while Affluent households are projected to rise from 47m to 83m over the same period. The overall household base is expected to expand from 330m to 407m, with Elite + Affluent households accounting for 30.1% of consumer spending by 2034 (vs. 19.6% in 2025), reinforcing a multi-year runway for both penetration-led growth and premiumization.

* The company continues to execute its long-term growth strategy, which is centered on penetration, premiumization, productivity, digitalization, and sustained investments in brands and capacity. Premium products now contribute 14% of sales (vs. 11% in 2021) and are growing faster than the overall portfolio. E-commerce continues to scale rapidly, contributing 8.5% of domestic sales, while the company has expanded its retail reach to 6.2m outlets and rural presence to 216,000 villages. NEST is also accelerating investments in AI-led planning, sales execution, and manufacturing.

* Management flagged that the near-term operating environment remains challenging despite improving business momentum. Consumption trends remain mixed, with rural demand continuing to outperform urban markets, while geopolitical uncertainty, commodity inflation, and supply chain disruptions remain the key monitorables. Volatility in energy, edible oil, packaging, and freight costs could keep input cost pressures elevated.

* Over the long term, NEST remains focused on expanding penetration to drive volume-led growth. We model revenue/EBITDA/APAT CAGR of 14%/17%/20% over FY26-28E. The stock is trading at 69x/61x 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).

Valuation view

* NEST 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, 1HFY27 growth is expected to be further supported by calibrated price hikes, stable RM prices, and GST 2.0-led tailwinds.

* With the weak base gradually anniversaried, we believe the growth rate can start moderating (on 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.

* The combination of low category penetration, increasing premiumization, new consumption occasions, and sustained innovation provides NEST a long runway for growth across its core categories, despite its already large scale in the Indian market. We model revenue/EBITDA/APAT CAGR of 14%/17%/20% over FY26- 28E. The stock is trading at 69x/61x 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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