Mumbai | Packaged food major Nestlé India reported stronger-than-expected results for the September quarter, fueled by solid volume growth across its key product segments. However, elevated input costs continued to squeeze margins, even as easing commodity prices could offer some respite in the coming quarters.
Brokerages remain optimistic about Nestlé’s long-term growth potential, citing improving consumption trends and recent Goods and Services Tax (GST) reforms expected to lift demand. Still, analysts caution that the stock’s premium valuation may limit near-term upside.
The company, the third-largest listed consumer goods firm in India by market capitalization, currently trades at around 76 times its FY26 earnings** and 63 times FY27 estimates.
Revenue Growth Driven by Core Brands
Nestlé India posted a 10.6% year-on-year (YoY) revenue increase, led by double-digit growth in its confectionery, beverages, and prepared dishes categories. The beverages segment emerged as a key growth driver, while the milk products and nutrition division saw mixed results, with some products outperforming and others lagging.
In the prepared dishes category, Maggi noodles achieved strong double-digit volume growth, supported by market share gains in rural areas. The confectionery segment, anchored by KitKat, also expanded sharply, with Munch and Milkybar recording high double-digit growth due to wider distribution and brand strength.
Export sales increased 14% YoY, driven by broad-based growth across product lines.
Margins Under Pressure
Despite healthy revenue growth, margins came under strain. The gross margin slipped 230 basis points (bps) YoY and 80 bps quarter-on-quarter (QoQ) to 54.3%, below expectations of over 55%. The contraction was largely attributed to higher raw material costs, particularly in edible oils.
Nestlé indicated that milk prices may soften, while coffee and cocoa are expected to remain stable. Operating margins also declined 100 bps YoY to 22.2%, reflecting persistent input cost pressures.
Analysts at Sharekhan Research expect volatile commodity prices to weigh on near-term margins but remain confident that Nestlé’s strong market position, innovation pipeline, capacity expansion, and rural reach will drive steady growth.
Mixed Analyst Views on Valuation
Motilal Oswal Research noted that Nestlé’s operating performance has been muted over the past few quarters due to sluggish revenue growth and margin compression. However, the brokerage expects the packaged foods sector to benefit first from demand recovery following the GST 2.0 transition.
While it raised Nestlé’s earnings estimates by 2%, Motilal Oswal maintained a “Neutral” rating, citing steep valuations.
Similarly, Nirmal Bang Research anticipates a gradual return to double-digit revenue and margin growth but retains a “Hold” rating, with analyst Krishnan Sambamoorthy highlighting rich valuations as a key concern.
Antique Stock Broking is turning incrementally positive on Nestlé, noting that sustained revenue recovery and easing raw material costs will be important triggers. The firm also maintains a “Hold” recommendation, valuing the stock at about 57 times two-year forward earnings.
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