Nestle India Q3 Results: Brokerages Raise Target Prices Following Strong Volume Growth

Nestle India reported its financial results for the third quarter of fiscal year 2026, delivering a performance that exceeded market expectations on several fronts. The company recorded an 18.6 percent growth in consolidated net sales, reaching 5,667 crore compared to 4,780 crore in the corresponding period last year. This growth was primarily driven by a significant surge in volumes, marking one of the strongest quarterly performances for the FMCG major in recent years.

Following the announcement, several leading brokerages have revised their target prices for the stock. While the top-line growth was robust, the company's operating margins faced pressure due to a deliberate and sharp increase in advertising and promotional expenditures. Despite this, the overall sentiment remains positive regarding the company's ability to capture market share through its aggressive distribution and brand-building strategies.

Financial Performance Breakdown

The company's net profit for the December quarter surged by 45.1 percent year-on-year to 998 crore, up from 688 crore in Q3 FY25. It is important to note that this profitability was aided by a one-time tax write-back and exceptional items. Revenue from operations stood at 5,667 crore, which was higher than the consensus estimates provided by major financial analysts.

Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) for the quarter was reported at 1,202 crore, representing a 9 percent increase from the previous year. However, the EBITDA margin narrowed to 21.1 percent from 23.1 percent in the year-ago period. This 200-basis-point contraction was largely attributed to a 42 percent year-on-year increase in advertising spends, as the company focused on strengthening its brand presence across urban and rural markets.

Volume Growth and Market Strategy

Nestle India achieved a volume and mix growth of approximately 16 percent during the quarter. This performance was supported by the company's RUrban strategy, which focuses on expanding penetration in rural areas while maintaining a strong hold on urban centers. The management's focus on e-commerce and quick-commerce channels also paid off, as these platforms continued to sustain high growth rates.

Nomura noted that the quarter did not see any one-off restocking effects, suggesting that the volume growth is sustainable and driven by genuine consumer demand. The company's aggressive brand-building efforts and expanded distribution reach, which saw the highest-ever numeric additions to its retail network last year, are now yielding tangible results in terms of sales velocity.

Brokerage Perspectives and Target Price Revisions

Financial analysts have expressed mixed but generally constructive views on the stock. Nomura maintained a Buy rating and raised its target price to 1,450 from 1,400, citing the strongest quarterly volume growth in recent years. The brokerage highlighted the management's Fast, Focused, and Flexible growth mantra as a key driver for future performance.

Motilal Oswal Financial Services raised its target price to 1,400 from 1,300 with a Neutral rating. The brokerage expects Nestle to benefit from GST 2.0, which is likely to stimulate consumption and drive affordability across the FMCG sector. Approximately 85 percent of Nestle's portfolio has benefited from recent GST rate rationalizations, leading to growth in both low-unit price points and larger packs.

Segment-wise Performance Highlights

The confectionery segment emerged as the fastest-growing product group during the quarter, led by strong underlying volume growth and premiumization. This was supported by increased in-home penetration and the rapid expansion of quick-commerce availability. The powdered and liquid beverages segment also maintained its momentum, marking the 18th consecutive quarter of double-digit growth.

Prepared dishes and cooking aids saw robust double-digit value growth, while the milk products and nutrition segment showed improving trends across various channels. The out-of-home business, which includes beverages and machines deployed in offices and campuses, also reported double-digit growth, reflecting a recovery in institutional demand.

Commodity Outlook and Cost Pressures

Nestle India flagged several challenges on the commodity front. Milk prices remain firm despite the seasonal flush, and edible oil prices are expected to remain elevated in the near term. However, coffee prices have stabilized at lower levels compared to the previous year due to better global crop yields. The company is also optimistic about the upcoming wheat harvest in April 2026, which could provide some relief to input costs.

To manage these pressures, the company is focusing on efficiency measures and selective pricing strategies. The management indicated that while raw material costs are a variable to watch, the focus remains on driving volume growth and maintaining market leadership across its core categories.

Shareholder Value and Dividend

In a move to reward shareholders, the board of directors declared an interim dividend of 7 per equity share for the financial year. The record date for the dividend has been set for February 6, 2026, with the payout scheduled to commence from February 26, 2026. This announcement reflects the company's strong cash flow position and commitment to returning value to its investors.

Market Impact and Stock Movement

Following the results, Nestle India's share price initially gained over 3 percent, reaching a 52-week high of 1,338.90 on the NSE. However, the stock faced some volatility during a broader market correction in subsequent sessions. Analysts noted that while the operational performance was strong, the stock's high valuation, trading at approximately 60 times its FY28 earnings, remains a point of consideration for some investors.

Analysis of Long-term Outlook

The long-term outlook for Nestle India remains anchored in its ability to innovate and expand its reach. The appointment of Edouard Mac Nab as the new Chief Financial Officer, effective March 1, 2026, is seen as a strategic move to strengthen the leadership team. The company's focus on sustainability, including its planned investment in renewable energy SPVs, aligns with global ESG mandates and could help manage long-term energy costs.

Conclusion

Nestle India's Q3 FY26 results demonstrate a resilient business model capable of delivering high volume growth even in a challenging inflationary environment. While margin pressures from increased advertising spends and commodity costs persist, the company's strategic focus on distribution expansion and brand investment appears to be driving market share gains. Investors will likely keep a close watch on commodity price trends and the sustainability of volume growth in the coming quarters.