Nestle India Q1 Results Review: PL Capital Downgrade Rating to ‘Hold’ Cuts Target Price on Premium Valuations
Nestle India, one of the leading food and beverage companies in the country, has recently announced its Q1 results. The company’s sales growth was 5.9% during the quarter, but its EBITDA margins declined by 155 basis points due to the impact of elevated commodity prices, higher operational costs, and a decline in sales from its Milk products and Nutrition segment.
In a report, PL Capital, a leading research agency, has downgraded its rating on Nestle India from ‘Accumulate’ to ‘Hold’ and cut its target price to Rs 2392, citing premium valuations and headwinds in the dairy and nutrition segments.
Reasons Behind the Downgrade
PL Capital has cut its FY26 and FY27 estimates of Nestle India by 4.4% and 6.8% respectively, citing pressure on its Milk products and Nutrition segment due to muted dairy growth and rising competitive intensity in low-growth infant nutrition. The agency has also highlighted higher overheads and depreciation due to the near-doubling of the company’s gross block over the last three years.
The report noted that while Nestle India remains confident of double-digit sales growth in its Maggi, Nescafe, and Chocolates segments, the company faces significant challenges in its dairy business, where domestic players have much lower margin expectations and offer competitive prices. The infant nutrition segment, which includes Cerelac and Lectogen, has grown at low single digits over the last decade and faces added competition from Danone in a high-margin, low-growth segment.
Impact on Earnings
Given the 11.7% PAT decline in Q1, PL Capital expects FY26 EPS growth to be in the low single digits, while FY27 is likely to show 10.3% EPS growth. The agency has also assumed an 11.5% EPS CAGR post FY26, which limits any meaningful upside in the stock price.
Target Price and Rating
PL Capital has cut its target price to Rs 2392 from Rs 2550 earlier, citing premium valuations. The agency has also downgraded its rating from ‘Accumulate’ to ‘Hold’ due to the headwinds in the dairy and nutrition segments and the company’s premium valuations.
Conclusion
Nestle India’s Q1 results have been impacted by the challenges in its dairy and nutrition segments, which has led to a downgrade in its rating and a cut in its target price by PL Capital. While the company remains confident of growth in its Maggi, Nescafe, and Chocolates segments, it faces significant challenges in its dairy business and the infant nutrition segment. Investors would do well to take a cautious approach to the stock, considering the premium valuations and the headwinds in the dairy and nutrition segments.
Click on the attachment to read the full report:
