GST 2.0 provides consumer-staples with a structural lift, as it cuts the tax on most food and personal-care items to five per cent from the earlier 12-18 per cent. The lower rate is expected to spark a rebound in volumes, and help the organised players to capture a larger market share from the unbranded and informal rivals. Categories such as noodles, biscuits, packaged water, snacks, soaps and hair oils are poised for faster consumption growth.
According to Elara Capital, the moderate beneficiaries are Nestle India (seven per cent cut), Dabur India (six per cent), Emami (five per cent) and Mrs Bector Foods (six per cent). Regional competition and lower-penetration categories are set to benefit disproportionately, which will further support demand for players like Britannia and Nestle India.
According to ICICI Securities, Nestle has significantly improved its pace of innovation, four times faster than a decade ago, and expanded its portfolio with over 150 new product launches. These include millet-based and plant-based products, sugar-reduced offerings, and nutrition-forward variants like sugar-free Cerelac and Ceregrow.
Its confectionery segment, which generated 17 per cent of the revenues, is the best-performing category with nine per cent volume and 13 per cent value CAGR (Compounded Annual Growth Rate) over the past decade. The success was driven by distribution expansion in the villages with accessible price points of Rs 5 and 10. KitKat emerged as the country’s fastest-growing chocolate brand, and became Nestlé’s second-largest global market for the product. Brands like Munch and Milkybar doubled their businesses.
Nestle’s stock, however, has not fully reflected these trends. Investors seem to have some apprehensions. In the past three years, the stock price increase (in percentage terms) is lower than the BSE Sensex, and BSE FMCG index. However, if one looks at the trends in the past month, and year-to-date, the stock outperformed the two indices. The company’s share price grew by more than 10 per cent in the past month, compared to less than three per cent for the Sensex, and three per cent for the FMCG index. According to the year-to-date figures, the contrast was more glaring in favour of Nestle.
The reasons for this contrasting stock movement lie in the financials. Nestle’s Q1-FY26 performance was weak as multiple headwinds led to decline in margins, and double-digit decline in PAT (Profit After Tax). The results fell short on profitability, with operating margin slipping 156 basis points YoY (Year-on-Year) to 21.6 per cent. Net profit dropped 11.7 per cent to Rs 659 crore, and revenue rose a modest six per cent from the figures a year earlier.
“Gross margin/OPM (Operating Profit Margin) fell by ~250 basis points/~150 basis points YoY to 55.2 per cent/21.6 per cent, sharply missing our estimates of 57 per cent/23.5 per cent owing to elevated raw material inflation across the portfolio, and higher operational costs of manufacturing capacity expansion,” state the analysts at Mirae Asset Sharekhan Research.
According to this brokerage’s report, interest cost was up by 48 per cent YoY due to increased borrowing from commercial banks to fund temporary operational cash-flow requirements. According to the Nestle management, the powdered and liquid beverages segments remained a key growth engine, and delivered strong double-digit increase this quarter on top of last year’s high double-digit base.
Nescafe strengthened its leadership in coffee, added market share, and widened its reach with affordable packs. It expanded the premium line through Nescafe Gold and Nescafe Roastery. Ready-to-drink Nescafe products maintained strong momentum. Prepared dishes and cooking aids returned to volume growth, as Maggi noodles achieved double-digit gains, and Masala-Ae-Magic continued its robust double-digit performance.
Until 2015, Nestle was largely viewed as an urban-focused company. Then it pivoted to a penetration-led volume growth strategy. The company added 1.3 million retail outlets, which took the total to 5.3 million, and marked the fastest network expansion among peers in 2024. Its Rurban initiative, which was launched in 2019, boosted rural distribution points to 28,240, up from 12,331, and extended reach to 209,050 villages, up from 68,578 in 2020.
Delay in demand recovery, regulatory hurdles in key food categories, or rise in key input prices can act as key risks in the future. According to a few brokerages, despite the challenges, the future looks bright. The company’s strong position in the domestic foods market, innovative portfolio, focus on distribution and capacity expansion, and improvement in out-of-home consumption will help.
Yet, Sharekhan Research reduced its estimates for FY26 and FY27 by more than three per cent to factor in higher interest costs, and lower other income. The brokerage wants to monitor pick-up in volumes and margin recovery in the future. Still, it maintains a buy on the stock, with a revised price target of Rs 2,600. ICICI Securities maintains a hold, with a target price of Rs 2,400. The market price of Nestle is Rs 1,204 as on September 17, 2025.