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Nestlé’s 2QFY27 results were slightly ahead of consensus expectations. Revenue growth remained strong (+20% yoy), though moderated qoq, despite a decent base (+11% in 2QFY26), and was in line with consensus expectations. Growth was volume-led and broad-based across all four segments. Across channels, e-com continued to grow strongly, led by quick commerce. Gross margin expanded sharply by ~260bps yoy on an improved mix and lower coffee prices, in our view. EBITDA margin expansion was lower at ~190bps yoy, mainly due to elevated advertising spends (+46% yoy). The management highlighted rising food inflation as a key challenge and intends to mitigate it through innovation and cost efficiencies. Overall, it was a good quarter, with 31% EBITDA growth. We raise our earnings estimates for FY27-29 by 1-4% to factor in the beat on margins but lower our valuation multiple as we expect the growth rate to moderate in 2H due to a high base and deteriorating demand. We reiterate REDUCE with an unchanged TP of Rs1,350 (52x Sep-28E EPS) on expensive valuations despite the sharp stock correction following 2Q results.

2QFY27 results summary

Revenue grew ~20% yoy and was 3% above our estimates and in line with consensus estimates. Gross margin was up ~260bps yoy to 56.9% (down ~30bps qoq), helped partly by lower coffee prices, in our view. Advertising spend remained elevated (+46% yoy), while staff costs grew at a slower pace (+6% yoy). EBITDA grew 31% yoy (3% above consensus). PAT grew 37% yoy and was 2% ahead of consensus expectations.

Strong broad-based growth across all categories

Categories: Confectionery continued its strong run with volume-led double-digit growth, led by market share gains in KitKat, while Munch and Milkybar sustained their growth momentum. Beverages reported strong volume-led growth, driven mainly by premiumization, increased affordability, and reach. Prepared Dishes and Cooking Aids grew strongly, with higher rural penetration driving growth in Maggi. Milk Products and Nutrition reported strong broad-based growth on the back of investments in brand building and portfolio optimization. Pet Foods continued to grow in strong double-digits.

Channels:E-commerce continued its strong growth momentum, led by QC on the back of strong execution (improved product availability, channel-specific assortment, etc). Organized trade delivered strong growth, with General Trade growing in double digits, led by rural. Out-of-Home growth was supported by innovation and premiumization.

Commodity outlook: Coffee and wheat prices are expected to remain range-bound, while sugar and edible oils have stabilized at elevated levels. However, cocoa is likely to remain under pressure, led by crop concerns on account of weather. Though milk prices have been inflationary, they should ease in the flush season, per the management.

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