Nestle India’s share price is in focus after the sharp losses as a result of the Q1 gross margin contracting substantially. This led Nuvama Institutional Equities to cut the price target.
Also, the FMCG player’s shares saw a beating in Thursday’s trade after reporting its quarterly results, declining 5% in one session to Rs 2,329.10.
Nuvama on Nestle India: Margin contraction big worry
Nuvama slashed the target price on Nestle India very slightly to Rs 2,820 from Rs 2,825. The cut came on the back of a contraction in gross margin, which contracted 250 basis points YoY to 55.2%, primarily due to high coffee raw material costs.
Notably, after the first quarter, the cost of coffee decreased by 30%, which is likely to lead to a gradual margin recovery. The brokerage is decreasing EPS estimates for FY26 by 6.8% and for FY27 by 4.1%, as depreciation compared to finance costs is expected to remain elevated due to higher capital expenditures.
Nuvama on Nestle India: Returning to volume-led growth
However, the brokerage maintained its ‘Buy’ rating on the stock as the prepared dishes and cooking aids category swung back to volume growth.
During the quarter, seven out of the top 12 brands grew in double digits. Domestic revenue increased 5.5% YoY while exports grew 16% YoY. Three out of four product group categories posted balanced growth. Prepared dishes and cooking aids, powdered and liquid beverages and confectionery have bounced back to volume-led growth, while milk and nutrition relatively underperformed.
Nuvama on Nestle India: Commodity prices in favour
The supporting factor for the next quarter remains the fall in coffee prices. Coffee prices are likely to remain range-bound at lower levels, supported by a normal Vietnam crop. Cocoa and edible oil prices have stabilised. Plus, milk prices may fall with a favourable monsoon and the onset of the flush season.
Nestle India Q1 results 2025
Nestle India posted a 13.4% year-on-year (YoY) drop in consolidated net profit, which came in at Rs 647 crore for Q1FY26, as against Rs 747 crore in the same quarter last year. However, the company’s revenue grew by 6% YoY to Rs 5,096 crore, up from Rs 4,814 crore in the corresponding period of the previous fiscal year.
Nestle India reported Q1FY26 volume, which was up 3% YoY, in line with the brokerage’s estimates, whereas EBITDA, which was flat YoY, came in below estimates.