Britannia and Nestle Set to Gain Big from GST 2.0, HSBC Upgrades Stocks

Britannia Industries and Nestle India will be the leading firms to benefit from the new GST 2.0 policy. The brokerage raised both companies from Reduce to Hold, highlighting their substantial exposure to FMCG product categories for which the GST tax rate was reduced.

The new GST framework was implemented on 22nd September 2025, the new GST tax framework simplifies and consolidates the previous burden of taxation across multiple slabs into 2 main rates, which lower the overall cost of GST on some of the key packaged food and beverage products. This GST reform should drive meaningful revenue growth for Britannia and Nestle.

How GST 2.0 Reduces Costs for Britannia and Nestle India

According to the analysis from HSBC, approximately 60% of Britannia’s sales and 65% of Nestle India’s sales come from products that are now taxed at a much lower 5% GST rate from the previous 18% GST rate for the food manufactured. Some of the largest categories that fall in that previous 18% GST bracket would include biscuits, chocolates, noodles and other impulse food items. 

The lower tax rate will allow these companies to either cut prices (which will lead to greater consumption) or to increase grammage of products, thereby providing better value for the consumer, which should lead to better volume growth in urban and mid-market segments where discretionary spend is likely to increase.

HSBC also considered more general economic tailwind alongside GST cuts including recent income tax relief and the possibility of repo cuts, which they believe could provide a sense of life to urban consumption which has been muted for more than a year.

The brokerage raised its FY27 EPS estimates for both companies and raised valuations multiples: Britannia went from 45x to 50x PE multiple and Nestle India went from 55x to 60x PE multiple. The fact that the brokerage has raised the earnings multiple reflects greater confidence of the companies’ earnings potential with the government initiatives that they have implemented.

Economic Tailwinds Support Consumer Spending Revival

In addition to the GST cuts, HSBC points to recent income tax relief, as well as expected corridor reductions by the Reserve Bank of India, as other sources of bolster urban buying power. All these measures, in conjunction with tax cuts and repo rates, are designed to stimulate consumption following prolonged periods of weakness. HSBC upgraded its earnings forecasts and valuation multiples for both companies to reflect higher future profitability, raising target prices to Rs 6,140 for Britannia and Rs 1,270 for Nestle India.

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The Bigger Picture: India’s Simplified GST Reform

GST 2.0 is a transformative tax policy reform that compresses the number of tax slabs to two (5% and 18%), with 40% on luxury and sin goods. The goal is to relieve business compliance burdens, correct inverted duty structures, and place a larger portion of disposable income in the hands of consumers. In a particular benefit, FMCG companies enjoy a uniform lower tax rate on daily essentials, which is helpful because tax rates on these types of goods have historically varied and have complicated supply chains.

What the Market Reaction Means for Investors

After HSBC’s upgrade, shares of Britannia and Nestle India quickly rose as a result of improved confidence from institutional-investor clients. Stocks of smaller FMCG companies with relatively more exposure to essential goods may benefit from expected increases in volumes, especially given the risk of rising input costs and declining consumer demand in other sectors.

While valuing sector exposure, it is important to determine if the FMCG revenue increase can compensate for input cost inflation without aggressive pricing strategy; lower consumer demand (compared to prior to initial condition); and competition from regional supermarket chain players which are focusing on volume and with regional company positioning strategies and partnerships.

Looking Ahead: Growth Opportunities and Considerations

The GST 2.0 reform along with improving consumption trends set in motion an excellent growth environment for leaders like Britannia and Nestle India. Investors should continue to monitor urban spending patterns and inflation closely, as these will be instrumental in continued growth. It is important to keep abreast of developments using credible financial news to access these evolving opportunities.

Conclusion

The introduction of GST 2.0 signifies a transformative time for FMCG in India and presents a strong opportunity for established operators e.g. Britannia and Nestle India, as well as emerging players. HSBC upgraded its rating reflecting its confidence that the tax reforms and consumer demand sentiment have improved and should drive earnings growth and market share.

Investors should, however, monitor changing consumption patterns, especially in urban markets, as well as broader macroeconomic indicators relating to policy change and inflation. Importantly, as noted above, fibre-based and vitamin enhanced brands show resilience in uncertain times. As the GST 2.0 initiative continues to evolve, stakeholders interested in these fast-changing opportunities in India’s FMCG market will benefit from exposure to good news outlets and regular updates.

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Key Highlights

• HSBC raised its rating on Britannia Industries and Nestle India from Reduce to Hold, as there will be material benefit from the GST 2.0 reforms on September 22, 2025.
• The restructured GST regime, while still cumbersome, effectively collapses many tax slabs to two principle rates, 5% and 18%, with lower taxes on many FMCG products, including biscuits, chocolate, and noodles – important product categories for both companies.
• Approximately 60% of Britannia’s revenue and 65% of Nestle India’s revenue derived from products previously taxed at 18%, now lowered to 5%, which gives them flexibility to reduce prices, or even increase product sizes, which will only further support national consumption.
• Along with the price conscious GST cuts, HSBC believes that easing income tax recentralization and expected RBI repo rate cuts will likely to have a strong tailwind for urban consumer spending, with easing inflation.
• HSBC increased its FY27 earnings estimates for both companies and increased their valuation multiples as follows: Britannia’s PE multiple increased from 45x to 50x; Nestle India increased from 55x to 60x; target price updated to Rs 6,140 for Britannia and Rs 1,270 for Nestle India.
• The objective of the newly established GST 2.0 was to help relieve compliance burden (which is never wholly relievable), and more importantly address the number of groceries and food items which had inverted duty, to help convey a better value for the FMCG products than anywhere else in the retail sector, ultimately taking back market share due to the strength of brand loyalty and distribution.