Nestle's recovery from Maggi ban will be long haul: Analysts

Recovery may be a long haul for Nestle India with its flagship product Maggi noodles having been banned by food regulator FSSAI over safety concerns, according to analysts.

Not only the sales of noodles but other Maggi food items like pasta, ketchup and cooking aids would also be impacted with the company's goodwill taking a major hit, they said.
Maggi is estimated to contribute 20-25 per cent in Nestle's total sales, and its monthly sales are estimated to be around Rs 200 crore.

Prabhudas Lilladher analysts Amnish Aggarwal and Gaurav Jogani in a research report said Nestle India recovery will "be a long haul" after the Maggi episode, which "will have far reaching consequences for not only Nestle but entire food processing and FMCG industry".
"We expect sales impact on other Maggi branded items like pasta, ketchup and cooking aids also. Maggi brand accounts for 30 per cent of sales while Maggi Noodles account for nearly 23 per cent of company sales," they said.

They further said: "Maggi Noodles is a cult brand which has created an USD 500 million category in the past 30 years and it would require considerable media spends and consumer interaction to bring the product back on rails."

An analyst with a leading brokerage, who did not wish to be identified, said: "With the ban and subsequent withdrawal of the product from the market by Nestle, this controversy will not only have material impact but also has hurt goodwill of the company." An analyst with Motilal Oswal tracking the company said the controversy around the product has impacted the brand's iconic status.

"Maggi Noodles contributes 20 per cent of revenues and 25 per cent of the operating profit. Besides the obvious impact on sales, the crisis could also hurt the operating leverage of Nestle as prepared dishes and cooking aids was the only segment during year 2014 that was growing in volumes," he said.

"The impact on brand equity is more devastating because Maggi is widely consumed by kids and restoring consumer trust could take time," Motilal Oswal said in a research report.
Suggesting a way forward, Prabhudas Lilladher analysts said: "We believe that Nestle will have to reformulate the product, improve production processes, change packaging, claims and communication, and seek approvals for re-launch of product."    I) Continuing to fall for the fourth straight session today, shares of Nestle India tumbled nearly 8 per cent following more trouble for the company over the Maggi noodles row.

Nestle's stock has plunged by over 25 per cent since May 20, when the controversy started. The company's stock today declined by 7.63 per cent to settle at Rs 5,539.80 on the BSE.
In last four trading sessions, the stock has lost nearly 19 per cent, wiping out Rs 12,221.62 crore from its market valuation, which now stands at Rs 53,412.38 crore