For Nestle India, is the best in the past?
No party lasts forever, and Nestlé India Ltd has had a good one lately. The packaged-foods company has seen four quarters of solid year-on-year revenue growth. While revenue growth (domestic plus export sales) has tapered from a multi-quarter high of 25.4% in the June quarter to 20.5% in the September quarter (Q2FY27), it is remarkable nonetheless. Growth in Q4, Q3 and Q2 of FY26 was 23.4%, 18.5% and 10.9%, respectively.
Q2FY27 revenue at ₹6,782 crore was supported by double-digit volume growth. But the stock fell 7.7% on Thursday after the broadly in-line Q2 results were out, and fell marginally again on Friday. Perhaps, investors are now noting that Nestlé India’s growth momentum could slow ahead, as the benefits of a low base and GST-led boost, start fading. Moreover, “Rising inflation, particularly food inflation, is a reality,” said the company.
This comes at a time when the entire FMCG sector is facing inflationary pressures arising from El Nino conditions and higher raw material costs triggered by the West Asia war. However, Nestlé could be relatively better-placed. “urban-centric diversified and premium-focused businesses such as Nestlé are likely to perform better,” said Manoj Menon, head of research and consumer analyst at ICICI Securities, adding, “Steady urban demand, product innovation, strong brands supporting price hikes and growing demand for premium products should help the company protect its gross margins from uncertain rural conditions.”
Nestlé India’s domestic sales grew 20.4% year-on-year in Q2FY27 to ₹6,515 crore, contributing 96% of revenue, while the rest came from export sales, which grew 22%. Confectionery products saw volume-led double-digit growth, led by market share gains in Kitkat, and momentum in Munch and Milkybar. Powdered and liquid beverages delivered volume-led growth. Prepared dishes and cooking aids saw strong growth, with Maggi noodles continuing to expand through rural penetration, while Maggi Masala-ae-Magic stayed focused on driving household penetration. Milk products and nutrition saw broad-based growth, led by investments in brand-building and portfolio optimization.
Ad spends have been a crucial ingredient for Nestlé’s growth.
“Since Mr. Manish Tiwary took over as MD, we note the company has materially stepped up its ad spends, up 46% year-on-year in Q2FY27 (versus 41%/52%/42% year-on-year growth in Q1FY27/Q4FY26/Q3FY26), with around 55% being digital spends which along with distribution increase is aiding in propelling this strong growth versus peers,” reckons Nomura Financial Advisory and Securities (India).
Despite elevated advertising and marketing spends, Q2FY27 Ebitda margin expanded by 195 basis points (bps) to 23.8%, aided by 243 bps increase in gross margin to 56.9%. Investors will closely watch if margins can sustain. According to Menon, “cocoa prices, along with elevated sugar and edible oil costs, remain key risks. These pressures could be partly offset by stable coffee and wheat costs, moderation in milk prices during the flush season, and productivity measures.”
Nestlé India’s shares have been flattish over the past year, but have dropped 18.5% from their 52-week high of ₹1,553 on 7 August. “After the recent share price corrections across FMCG companies, the gap in valuation for Nestlé versus peers has widened (55x vs 35x for the sector); thus, we expect the share price to remain range-bound in the near term,” wrote Mihir Shah of Nomura in a report on 15 October. “While we believe Nestlé’s strong financial performance versus peers will continue, the growth rate will start moderating from Q3FY27 onwards.”