Nestle stock brushes off results

Weathers 60% drop in Sept's net; analysts say reason is positive triggers, big one being restart of Maggi production in 3 states

The 60 per cent drop in net profit of Nestlé India in the September quarter hardly appears to have affected its stock price. A day after its disappointing numbers, the scrip fell only 1.6 per cent on the BSE exchange, closing at Rs 6,179.50.

Analysts attributed this to positive triggers, the big one being the restart of its Maggi noodles' brand in three states, at its factories in Karnataka, Goa and  Punjab. This put to rest the initial hiccups the company had faced, soon after it cleared the court-mandated safety tests a fortnight earlier.

The problem was state-wide bans in the areas where Nestlé had its Maggi-producing units. The Uttarakhand and Himachal Pradesh have still not given a green signal for production; those of Karnataka, Goa and Punjab did. The first two were the first to lift the ban, last week, prompting Nestlé to act quickly. Analysts say it is imperative for the company to act fast if it has to relaunch Maggi in time, which is by the end of the year.

Prior to the ban, Maggi noodles contributed around a fourth of Nestlé India's Rs 9,800-crore annual revenue. The Rs 2,500-crore brand was also the leader in the Rs 3,500-crore instant noodles category, before the ban. The category has since shrunk to Rs 1,000 crore, according to sector estimates.

Maggi had also aided Nestlé in logging single-digit volume growth for the 2014 calendar year (CY) in prepared dishes and cooking  aids, the segment where the brand sits in the company's portfolio. Prepared dishes and cooking aids, nearly 30 per cent of Nestlé revenue, was the only  category of  the company's four segments of operation — the others are milk products & nutrition, beverages, and chocolates & confectionary — to see positive growth in CY14. The other three saw a decline in volume growth for that year (Nestlé follows a January to December accounting year).

Industry sources say Nestlé will try to cover lost ground the moment the brand is relaunched.

Suresh Narayanan, managing director of Nestlé India, had said they'd do everything to ensure Maggi regained its earlier eminence.

The first few steps were taken right after the Bombay High Court order of August 13 which lifted the nationwide ban. This effort is expected to increase in the next two months.