Pros and Cons of Investing in Nestle India

The share price of Nestle India has been among the most consistent performers in the Indian market.

In terms of both capital gains and dividends, it has consistently delivered as per investors' expectations, often even beyond their expectations.

A long term chart of the stock going back 10 years or more will make that instantly clear.

Shareholders have had almost nothing to complain about. In fact, the stock often traded at a price to earnings (PE) ratio of 100 or more and the market wasn't concerned.

This was because the company had proven itself in terms of fundamentals over the long term. Investors assumed the stock would only go up.

But in the second half of 2024 concerns had crept in to the minds of investors. The stock had begun to fall resulting in serious underperformance against the Nifty.

Nestle India vs Nifty - 5 Years

The valuations of the stock took a bit hit. From a PE of around 90 a few years ago, the stock's PE fell to nearly 60.

Even though the PE is still at a premium to most of the market, Dalal Street is clearly nervous about the high valuations of the stock.

Nestle India PE - 3 Years

So, should investors consider the stock now?

In this editorial, we will look at the pros and cons of investing in the stock of Nestle India.

Pros

#1 Excellent Fundamentals

Over the last 5 years, the company has delivered a compounded annual growth rate (CAGR) of 14.6% in sales and in 14.9% in profits.

The return on equity (ROE) and return on capital employed has averaged a staggering 85.4% and 119.7% respectively over the last 5 years. Nestle India has been among the debt free companies in India going back many years.

This performance is due to the company's highly capital efficient business model as well as extremely strong pricing power in the market. This, in turn, results from its strong brand, good market reputation, and wide distribution network.

#2 Stable Growth Prospects

The market was concerned about the slowdown in economic growth, especially domestic consumption due to high inflation and the end of the post-covid spending boom.

However, things have been looking up for the company, as well as the entire FMCG sector.

Inflation has cooled to a large extent. In February 2025, India's Consumer Price Index (CPI) inflation rate was 3.61%, a 7-month low.

This was a significant decline from the previous month's inflation rate of 4.26%. It's also below the RBI's comfort level of 4%.

The RBI has also lowered its inflation forecast for FY26 to 4%, assuming a normal monsoon, signalling a gradual but consistent decline in inflation over the year.

This is positive for companies like Nestle because falling commodity prices will help to keep costs in check. This, in turn, will enable the company to maintain its margins.

On the growth from too, lower inflation is positive for Nestle because it encourages higher consumer spending. The company's topline will receive another boost this year, due to the tax relief provided by the government in the budget. Higher take home pay for consumers is positive for FMCG sales.

So, the short them picture looks good for the company. The company's long-term growth story was never in question.

Cons

#1 Baby Food Sugar Controversy

A recent report by Swiss NGO Public Eye and the International Baby Food Action Network (IBFAN) has stirred controversy. It revealed stark differences in the sugar content of Nestle's baby products across various nations.

The investigation, which scrutinised around 150 baby products from different countries, alleged that Nestle's products in South Asian (including India), African, and Latin American markets contain significantly higher sugar levels than those in Europe.

The report, highlighted findings from a Belgian laboratory that tested the samples, indicating that the sugar content exceeded international food safety guidelines.

Of particular concern is Nestle's wheat-based product, Cerelac, designed for six-month-old babies. While Cerelac, sold in the UK and Germany, contains no added sugars, its counterpart in India contains 2.7 grams of added sugar per serving.

Responding to the allegations, FSSAI said it would conduct a thorough investigation. If Nestle is found at fault, the regulatory body has pledged to take stringent action.

Controversies like this have regularly crept up in the past with the company, either in India or abroad.

This is a risk that the market is very sensitive to and investors need to be fully aware of it.

#2 High Valuations

Nestle India has always been a stock with very high valuations. Investors have kept faith in the stock through thick and thin.

However, no matter how good the fundamentals of a business may be, investors should always pay close attention to the valuations of the stock.

At the time of writing, the stock's PE ratio is 69 and its price to book (PB) ratio is 48.

About Nestle India

Nestle India is the 100-year old, second largest FMCG company in India. It dominates the noodle (Maggi) and the hot beverage (Nescafe) categories.

After more than a century-old association with the country, Nestle India today has presence across India with 8 manufacturing facilities and 4 branch offices.

Nestle India is a subsidiary of NESTLE S.A. of Switzerland. The company has more than 2,000 brands ranging from global icons to local favourites and is present in 191 countries around the world.

The products offered by Nestle range across categories such as milk and nutrition, chocolates and confectionary, beverages, and prepared dishes and cooking aids.

Some of the famous brands of the company are Nescafe, Nestle Everyday, Sunrise, Maggi, KitKat, Milkybar, Milkmaid, Nestea, Munch, Bar one, Polo, and many more.

For more details, check out Nestle India's factsheet and quarterly results on our website.

For more details about the FMCG sector, you can check out the FMCG sector report on our website.

You can also compare Nestle with its peers on our website.

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To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...