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FMCG earnings Q1FY26 earnings review

ICICIdirect Research 25 Jul 2025 DISCLAIMER

Tata Consumer Products registered relatively better performance compared to large peer Nestle India.
Volume growth for FMCG cos has seen sequential recovery.
Input prices moderating from high will help EBIDTA margins to improve in H2FY26.
Revenue growth and PAT growth is expected to much better in H2FY26 vs. H1FY26.


Tata Consumer products (Reco. – Buy)

Consolidated revenues grew by 10% driven by 12% growth in branded tea business and 14% growth in the India food business.
Domestic volume growth sequentially improved to 6.8% in Q1FY26 from 5.9% in Q4FY25.
Gross margins decreased by 482bps YoY to 40.1% affected by higher tea prices and lower margins in non-branded business. EBITDA margins declined by 263 bps YoY to 12.7% in Q1FY26.
Lower interest cost led  to 9% growth in the Adjusted PAT to Rs372crore.
Outlook: Domestic tea prices corrected by 13% from its high and expected to further correct on better tea crop. This along with strong growth of 25-30% in high margin business such Tata Sampann, Capital Foods and Organic Foods will help EBIDTA margins to improve to 16% in H2FY26.
View: We expect earnings to grow at CAGR of 20%+ over FY25-27E. We maintain Buy with an unchanged PT of Rs1,350.


Nestle India (Reco. – Hold)

Consolidated revenues grew by 6% yoy driven by ~3% volume growth in domestic business. Over revenue growth improved by 2% on sequential basis with the international biz coming back to positive growth trajectory of 16% in Q1FY26.
Seven out of 12 top brands (including Maggi Noodles and Kit Kat) grew at double digits. Categories such as prepared dishes and cooking aids, powdered, coffee and confectionaries bounced back to volume-led growth.
Inflated coffee and cocoa prices led to 249 bps decline in the gross margins. This along with higher operating cost due to incremental capacities in last six to eight months led 156bps decline in EBIDTA margins to 21.6% (street expectation – 23%).
EBIDTA was down by 1.3%yoy. Higher interest cost due to commercial borrowing towards near term working capital requirement led to decline 13% yoy in PAT.
Outlook: Management in the press release indicated of coffee after the recent moderation expected to  remain range bound while cocoa and edible oil prices have stabilised and milk prices are declining. This will lead to sequential improvement in the gross margins in the quarters ahead. Improvement in utilisation level of new capacities will lead to better operating leverage aiding EBIDTA margins also improve sequentially.
View: Stock has corrected by 4% after weak performance in Q1. Redefine of strategies under the new leadership will be keenly monitored in view of any recovery in the sales performance in the coming quarters. Any material recovery in the operating performance will be key re-rating trigger for the stock. We have Hold rating on the stock.

View our research recommendation on Nestle India Ltd Also explore more on Research page

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