Nestle Q4 Results Review: Margins Contracts On Cost Pressures; Dolat Capital Maintains 'Reduce', Cuts TP

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Dolat Capital Report

Nestle India Ltd.’s Q4 FY25 revenue met our estimates, with domestic revenue growing by 4.2% YoY, although exports de-grew by 8.7% YoY. Overall, revenue increased by 10.6% on a 5-year CAGR basis.

Due to inflationary commodity prices, gross margin contracted by 60bps YoY to 56.2%. While coffee prices remained firm, cocoa prices witnessed some correction; they remain elevated overall, and milk prices have seasonally firmed up with the onset of summer. In contrast, edible oil prices have stabilized. We believe raw material prices will continue to exert pressure on gross margin in the near term.

We reduce our FY26/27E EPS estimates by 2.6/1.2% to Rs 36.4/42.0 to factor in Q4 performance and urban slowdown. Although we believe Nestle’s growth rate and profitability will remain high in the long run (given strong leadership and unique positioning in most categories), the company may also witness near-term demand and inflationary headwinds.

That being said, we maintain our ‘Reduce’ rating with a target price of Rs 2,438 (Rs 2,467 earlier) valuing the stock at 58x FY27E EPS.

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