Reduce Nestle India Ltd for the Target Rs 1,350 by Emkay Global Financial Services Ltd
At its analyst meet, Nestlé’s management emphasized that it will continue growing strongly, despite potential demand headwinds in the near term, on the back of strong brands, media investments, and superior execution. Also, it does not want to chase growth at the cost of margins. We present other key highlights below. We keep our estimates unchanged and reiterate REDUCE and TP of Rs1,350, mainly due to expensive valuations and expected moderation in growth in 2HFY27 due to a high base.
Penetration-led growth while maintaining margins
The company continues to focus on penetration-led volume growth, driven by elevated media investments in its brands across segments. The confectionary business benefited from distribution expansion, innovation, and price pack architecture improvement. The company plans to leverage tech to drive growth without a significant increase in cost. In terms of outlook, while the management is concerned about rising inflation, it feels that Nestlé will continue to grow strongly on the back of its superior execution capabilities. The management does not intend to chase growth at the cost of margins.
Digital channels
The management believes that digital channels have emerged as strong growth channels, with emphasis on acquiring new consumers and being a launchpad for innovation, which is helping the company grow faster, especially in urban. Nestlé has the highest fill rate in quick commerce among peers, as per the management.
Distribution expansion
Nestlé achieved total reach of 6.2mn retails outlets, up sharply from 5.7mn in CY23, with the highest annual expansion last year. As of FY26, the company covered a total of ~220k villages, up from ~110k in CY21.
A&P spends
The management expects A&P spends to remain elevated as it will continue investing in brands, and a large part will be funded by increased cost efficiencies. Currently, 55-60% of A&P spends are toward digital (up from 33% in CY21).
Other key points
1) The share of premium increased to 14% in FY26 from 11% in CY21.
2) Nestlé’s rural salience is around half that of its peers and hence provides a large headroom for expansion.
3) India is a priority market for Nestlé worldwide (largest market for Kitkat and Maggi globally).
4) The management believes that there is still large headroom for growth available for several brands (Maggi, Nescafé, etc), given their relatively lower penetration levels (Instant noodles 37%, coffee 33%, Nestlé chocolates at 23% vs 63% for chocolates overall).
5) Focus is on organic growth while still evaluating M&A options.
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