Demand recovery to drive gains for packaged food major Nestle India

Nestle India posts strong volume-led revenue growth in Q2FY26; margins under pressure from elevated raw material costs, but easing prices may help ahead

Packaged food major Nestle India posted better than expected September quarter results led by strong volume growth across its key segments. While there were margin pressures due to elevated raw material costs, there could be some relief with easing prices in the near term.

 

Most brokerages are positive on the stock from a long-term perspective. An improving demand environment and recent goods and services tax (GST) reforms are expected to boost consumption going ahead. While there are growth triggers, the stock may not see a sharp uptick given valuations. The third-largest listed consumer company by market capitalisation is valued at over 76 times its 2025-26 (FY26) earnings estimates, and 63 times its FY27 estimates. 

The company posted a revenue growth of 10.6 per cent year-on-year (Y-o-Y), and this was led by robust double-digit growth of confectionery, beverages, and prepared dishes segments. While the beverages segment was the key growth driver, the milk products and nutrition category delivered a mixed performance. Some segments reported strong growth while others lagged. 

In prepared dishes, double-digit volume growth for Maggi noodles was led by market share gains in rural areas. In the confectionery segment, growth was led by Kitkat due to market share gain and distribution expansion in rural areas, with Munch and Milkybar also growing in high double-digit. Export revenues too were strong, rising 14 per cent Y-o-Y, led by growth across categories.

 

Sharekhan Research believes that a strong position in the domestic foods market, innovative product portfolio, focus on distribution expansion, capacity expansion, and improving out-of-home consumption will help Nestle compete and achieve better growth in a stable demand environment.

 

Though revenue growth was strong, the margin performance was muted, with gross margins falling 230 basis points (bps) Y-o-Y and 80 bps quarter-on-quarter (Q-o-Q) to 54.3 per cent while estimates had placed it above 55 per cent. The pressure was on account of higher raw material costs. The company, however, indicated that edible oil prices could stay higher while milk prices are likely to come down. Coffee and cocoa prices are expected to remain range-bound. Given the margin pressures at the gross level, the operating profit margins contracted by 100 bps Y-o-Y to 22.2 per cent. Sharekhan Research expects volatile commodity prices to keep a check on margins in the near term.

 

Motilal Oswal Research said that Nestle’s operating performance had been relatively weak over the past four to five quarters, marked by muted revenue growth and margin contraction.

 

After GST 2.0 transition, the brokerage believes that packaged foods would be the first to witness demand recovery and there could be growth acceleration going ahead. While analysts led by Naveen Trivedi of the brokerage have increased the earnings estimates by 2 per cent, they have a “Neutral” rating on the stock given its expensive valuations.

 

Nirmal Bang Research expects the company to gradually resume double-digit revenue growth as well as margin recovery going ahead. While Krishnan Sambamoorthy of the brokerage remains optimistic about packaged foods growth opportunity in India, he has a “Hold” rating on the company due to expensive valuations.

 

Antique Stock Broking is gradually turning constructive on Nestle. Sustained recovery in revenue growth and raw material trends will be a key monitorable, say analysts led by Abhijeet Kundu of the brokerage. It has a “Hold” recommendation as the current valuation of 57 times factors in the two-year forward price-to-earnings (P/E) growth.