Target: ₹2,300
CMP: ₹2,275
Nestle’s domestic sales grew 5.5 per cent y-o-y to ₹4,860 crore, with about 3 per cent estimated real internal growth. We estimate volume growth at around 2.5 per cent in Q1-FY26. Export sales grew 16 per cent to ₹214 crore. Overall revenue grew 5.9 per cent y-o-y to ₹5,070 crore.
The gross margin at 55 per cent, down by 250 bps y-o-y, came lower than our estimated 56.5 per cent. The company has been regular with price hikes which we thought would have helped the gross margin. However, it seems like trade spending and consumer promotions affected the gross margin. The management noted a surge in operating costs, given expansion in manufacturing capacities. On key raw materials, the management noted stability in edible oil and cocoa prices, a decline in coffee (expect it to be range-bound at current level).
Strong parentage, premiumisation potential, focused actions in rural markets, expected easing in raw material costs, and likely refinement in execution under the new leadership are factors that could keep valuations elevated (62x P/E on FY27E). Faster growth in the e-commerce channel is promising, as the company is better placed with the new CEO (experienced in managing one of the largest e-commerce platforms in India). However, limited revenue from other channels is concerning. We maintain Reduce with a Jun-26E TP of ₹2,300 (60x P/E), as we expect a gradual recovery in growth and margins.
Published on July 25, 2025
