Near-term recovery, margin expansion key drivers for Nestle India

Nestle India reports a 5.9% YoY revenue growth in Q1FY26, with a focus on recovery and margin expansion despite challenges from high commodity prices

Nestle India reported a 5.9 per cent year-on-year (Y-o-Y) revenue growth in the first quarter of financial year 2026 (Q1FY26) with domestic sales up 5.5 per cent.

 

The management said that except for the milk products and nutrition, all other categories recorded volume growth. Out of the top-12 brands, seven grew at double digits. Export revenue grew 16 per cent Y-o-Y, driven by foods, coffee, instant tea, and breakfast cereals.

 

The gross margin contracted 250 basis points (bps) Y-o-Y (down 100 bps Q-o-Q) to 55.2 per cent due to high commodity prices. Management indicated that coffee, cocoa, and edible oil prices are expected to remain range-bound, while milk prices may ease down. The operating profit margin contracted 130 bps Y-o-Y to 21.9 per cent, the lowest in the last 12 quarters.

 

The powdered and liquid beverages category remained a key growth driver, with high double-digit growth. 

 

Confectionery also recorded high double-digit growth. The prepared dishes and cooking aids category was led by double-digit growth in Maggi. Growth in the pet food business was driven by the cat portfolio. The milk products and nutrition category had a mixed performance with likely decline in a few categories.

 

Raw material inflation and higher operating costs, due to investments in manufacturing capabilities led to falling margins. Moderating urban consumption and high food inflation continue to be concerns especially since valuations are high at 69 times its FY26 estimated earnings. However, management expects milk costs to ease down while coffee and oil prices should be flat. This in itself, may initiate some gross margin recovery.

 

Nestle’s total revenue rose 5.9 per cent Y-o-Y to ₹5,100 crore with domestic sales up 5.5 per cent Y-o-Y to ₹4,860 crore, while exports posted 16 per cent Y-o-Y growth at ₹210 crore. Employee and other expenses rose 2 per cent Y-o-Y each. Operating profit was flat Y-o-Y at ₹1,110 crore. Higher depreciation charges (up 39 per cent Y-o-Y) and interest (up 48 per cent Y-o-Y), coupled with lower other income (lower by 90 per cent Y-o-Y due to reduced cash balance), hurt bottomline. The adjusted net profit declined 13 per cent Y-o-Y to ₹650 crore. 

 

The focus on its rural-urban (Rurban) strategy drove stronger growth in Rurban markets, with improved distribution penetration. Packaged food adoption has increased in Tier-II and rural markets. The portfolio is relatively safe from local competition. The company has invested ₹3,900 crore in manufacturing to cater to future demand and this should drive volume growth in the medium-long term. However, this will weigh on near-term margins.

 

Nestlé India’s out-of-home business consistently grew at double-digit rates, making it the fastest-growing business across the beverages and foods portfolio. It had strong growth in urban and Rurban markets too signalling a possible shift in market dynamics. The e-commerce channel maintained momentum, contributing to 12.5 per cent of domestic sales, driven by quick commerce and new launches.

 

Meanwhile, Manish Tiwary assumes the role of chairman and managing director of Nestlé India from August 1, 2025 and the industry and investors will watch for any changes in strategy.

 

Gross margin recovery would be a key monitorable going forward. Financing costs are likely to ease off post capex and a weak Q1FY26 may create a favourable base effect.  The stock reacted negatively on the results and analysts have downgraded earnings expectations.