Nestle India’s double-digit growth faces a tougher test from next quarter

Nestle India’s double-digit sales growth may lose momentum in the coming quarters as the benefit of a lower base wears off, even as strong volume growth and festive demand support its latest performance, according to a report by InCred Research.

The brokerage has retained its ‘Hold’ rating on the packaged foods maker but cut its target price to ₹1,375 from ₹1,560, citing an increasingly challenging growth base, limited headroom for margin expansion and regulatory scrutiny of some of its products.

Nestle India reported 20.5% year-on-year sales growth in the July-September quarter of FY27, with domestic sales rising 20.4% to ₹6,510 crore and exports increasing 22% to ₹260 crore. Volume growth was estimated at around 12%, compared with about 11% in the previous quarter and low single-digit growth through FY26.

The company’s standalone revenue rose 20.3% to ₹6,788.3 crore, while reported net profit increased 36.3% to ₹1,026.8 crore, according to InCred’s analysis of the quarterly results. Earnings growth was supported by improved gross margins and operating leverage.

However, the brokerage expects growth to normalise from the second half of FY27 as the favourable base effect diminishes. Sales in the second half of FY26 had grown 21% year-on-year, compared with 8.3% in the first half, setting a higher benchmark for the company in the coming quarters.

Broad-based demand lifts volumes, but margins face pressure

Nestle India’s volume performance was supported by demand across categories. Confectionery led volume growth, with KitKat gaining market share and festive initiatives during Onam supporting Munch and Milkybar. In coffee, Nescafe Classic and the relaunched Nescafe Sunrise performed well, while Nescafe Gold recorded strong double-digit growth. The company also scaled up its ready-to-drink coffee portfolio.

Maggi expanded its rural reach, the nutrition portfolio improved sequentially, with toddler products gaining share, and pet food continued to grow at double-digit rates. E-commerce, particularly quick commerce, delivered strong growth, while general trade recorded double-digit growth across town classes.

The improvement in sales also translated into better profitability. Gross margin expanded 260 basis points year-on-year to 56.9% in the September quarter, reversing six consecutive quarters of annual declines through the March 2026 quarter. EBITDA rose 30.6% to ₹1,615.5 crore, and the EBITDA margin improved 190 basis points to 23.8%.

But the margin recovery may be difficult to sustain. Other expenses rose 30% to ₹1,679.8 crore, increasing to 24.7% of sales, partly reflecting higher advertising and promotional spending. InCred said limited scope for further gross margin expansion and elevated advertising intensity could keep margins range-bound.

Input costs remain another variable. Sugar and edible oil prices are stable but elevated, cocoa prices remain volatile and milk is seasonally firm, while coffee and wheat prices are range-bound. Food inflation could therefore constrain profitability even as the company invests in demand generation.

Regulatory scrutiny adds to the uncertainty. The Food Safety and Standards Authority of India (FSSAI) filed three cases against Nestle India in September over promotional claims involving NAN Excella Pro and Lactogen Pro, as well as a formula that failed a biotin test. In October, the regulator declared a low-fat dairy whitener sample unsafe over phosphorus limits and raised concerns about allegedly misleading health claims for Celevida GLP+.

Nestle India disputes the cases. InCred expects any potential fines to be negligible in the context of the company’s overall business, but warned that the more significant risk could be a slower recovery in the nutrition category.

The brokerage has also lowered its earnings estimates. It cut its FY27 net profit forecast by 2.5% to ₹3,930 crore and its FY28 estimate by 2.3% to ₹4,524.7 crore. Its revised target price of ₹1,375 implies an upside of 7.8% from the share price of ₹1,276 cited in the October 16 report. InCred identified a slowdown in demand and input cost volatility as key downside risks, while sustained double-digit volume growth despite a higher base could provide an upside surprise.