Ban on Maggi may impact its material suppliers and packers: CRISIL

Nestle's Maggi Noodles has been at the centre of much controversy since local health authorities of various states raised issues that the product contains excessive levels of certain ingredients considered unsafe for human consumption and about the declaration on the product label that it contains no added monosodium glutamate.

Following bans on sales of this product by some state governments, Nestle India, on June 5, 2015, announced that it has decided to temporarily withdraw Maggi Noodles from the market.

The rating on Nestle India (Nestle India; rated 'CRISIL AAA/Stable/CRISIL A1+') will not be impacted as Nestle India's business risk profile continues to be supported by its diversified revenue profile and its leading market position in several product categories, including milk products, beverages, and chocolates and confectionery. Nestle India also continues to benefit from technical support from its parent, Nestle SA (rated 'AA/Stable/A-1+' by Standard & Poor's), which is one of the largest players in the global branded and packaged foods sector. Furthermore, Nestle India's financial risk profile is robust, marked by strong cash generation, minimal debt, and ample liquidity.

CRISIL, using its proprietary analytical tool, Leonardo, identified 35 firms of the 13,500 firms in its rating portfolio as on May 31, 2015, that had Nestle India as a key customer. The tool was used to classify these firms based on the specific product segment they catered to: milk products, beverages, chocolate, or ready-to-cook food (which includes Maggi Noodles). This resulted in a list of 10 firms that had a linkage to Nestle's Maggi Noodles business. These firms are suppliers of raw materials for, or are involved in packaging of, Maggi Noodles.

CRISIL is reviewing the impact of the ban on Maggi Noodles on the credit risk profiles of these firms. While CRISIL believes that the impact on most of the firms will be negligible, and hence, will not impact their credit rating, a rating or outlook change, if any, will be announced shortly.

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