Maggi row hits Nestle revenue

The Maggi noodles controversy is eating into Nestle India’s market capitalisation and could take a chunk out of its revenues for a few quarters, analysts say.

As the Delhi government on Wednesday banned the sale of Maggi noodles for 15 days after tested samples showed high levels of lead, large retail chains in the Capital took the product off their shelves.

The ban announced during market hours led to a 9% drop in Nestle India shares that closed at Rs 6,191.10 apiece on the BSE, extending the fall to 11.7% since the UP government first ordered a recall of Maggi packs over food safety concerns.

Nestle India’s flagship Maggi noodles contribute 25% of the company’s total revenues and enjoy 50%-plus market share. According to a company spokesperson, the noodles are produced in-house; nothing, not even the tastemaker, is outsourced.

Some retailers said Maggi sales fell nearly 30% after the issue came up, though exact figures were not immediately available. Trade experts say Maggi’s troubles could partly boost sales of rival brands, however the noodles segment as a whole could get hit if the issue played out over a longer term.

Tobacco and FMCG giant ITC has been aggressive over the past several quarters, with its Sunfeast Yippee brand of noodles garnering 15% market share. Nestle India reported 23% growth in net profit in the January-March quarter but volumes were flat.

“Maggi was perhaps the only growing brand (in volumes) for Nestle India last quarter. Following this controversy, we feel the company’s volume growth in the second quarter (April-June) could even be negative,” said an analyst at a domestic brokerage. Analysts say Nestle India’s earnings could be under pressure for a couple of quarters.

The Kishore Biyani-promoted Future Group, which operates store chains such as Big Bazaar, KBs and Nilgiris, has already stopped selling Maggi. Another supermarket retailer HyperCity, owned by Shoppers Stop, said it had also decided to take Maggi off the shelves for the time being.

Kerala is pulling out Maggi from all state-run outlets.

Nestle India maintains that Maggi is a safe product. A Nestle spokesperson said that independent testing shows that lead levels are well within the limits specified by food regulations, Apart from the Maggi issue, in Coimbatore, Tamil Nadu, the company came under the scanner of local authorities after live larvae were found in its baby milk formula Nan Pro-3.

The Nestle India spokesperson said the company was making efforts to gather more information to investigate that matter