Nestle India Q1 Results Review - Weak Topline; Commodity Headwinds Lingers: Yes Securities

Yes Securities Report

Nestle India Ltd.’s reported weak set of numbers in Q1 FY25. Domestic sales grew just 4.2% with one-fourth of it coming through a combination of volume and mix. This trend is expected to improve in coming quarters.

Also, it is important to note that while the company has made huge efforts on rural distribution expansion, but its rural mix at 20-25% remains lower compared to peers. Hence, rural recovery benefit will be lower for Nestle in the coming quarters.

Gross margins surprised us with a 90 basis points QoQ improvement, but higher overheads meant that Ebitda margin improvement was restricted (~80 bps below our estimate).

Key commodity inflation and volatility might have an incremental impact on performance in the near-term. The stock currently trades at ~75 times/64 times FY25E/FY26E EPS.

Since, we haven’t baked the benefit from the new joint venture with Dr. Reddy’s and introduction of Nespresso in our estimates, we continue to assign a slightly higher multiple of ~62 times and roll-forward to Sep’26E EPS, arriving at a revised target price of Rs 2,515 (Rs 2,420 earlier). Assign Neutral rating.

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