Nestle India Q1 Results Review— PL Capital Downgrade Rating To 'Hold', Cuts Target Price On Premium Valuations

Nestle posted a weak quarter with 5.9% sales growth and flattish Ebitda as margins declined 155 bps given impact of elevated commodity prices (coffee, cocoa, milk and palmoil), higher operational costs (expansion in capacity) and drag in sales from Milk products and nutrition.

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PL Capital Report

We cut FY26/FY27 estimates of Nestle India Ltd. by 4.4/6.8% given-

1. pressure on Milk Products and Nutrition category (~38% of sales) due to muted growth in dairy and rising competitive intensity in low growth infant nutrition and

2. higher overheads /depreciation due to near doubling of gross block over last three years

Nestle posted a weak quarter with 5.9% sales growth and flattish Ebitda as margins declined 155 bps given impact of elevated commodity prices (coffee, cocoa, milk and palmoil), higher operational costs (expansion in capacity) and drag in sales from Milk products and nutrition.

We remain confident of doubledigit sales growth in Maggi, Nescafe (powder + RTD) and Chocolates (Wafers and milk chocolates). However, Maggi Noodles face rising competition from host of B2C brands in a fast-evolving category.

Nestle faces a big challenge in dairy given that a lot of domestic dairy players have much lower margin expectations and far competitive prices. Infant nutrition (Cerelac and Lectogen) has grown at low single digits in last decade and faces added competition from Danone in a high margin low growth segment.

Given ~11.7% PAT decline in 1Q, FY26 EPS growth is likely to be in low single digits and FY27 should likely show 10.3% EPS growth.

Even after assuming 11.5% EPS CAGR post FY26, the stock trades at 63xJune27 EPS, which limits any meaningful upside.

We cut the target price to Rs 2392 (Rs 2550 earlier) and rating from Accumulate to Hold given headwinds in a dairy and nutrition and premium valuations.

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