Nestle India's shares were down over 1% on Friday in afternoon trade amid growing controversy surrounding the Maggi noodles and the company’s decision to take the brand off the shelves temporarily after more states banned the product’s sale.
On Friday, Nestle’s global CEO Paul Bulcke tried to address concerns on Maggi, which has come under investigation of various states across India for high lead content and presence of taste enhancer monosodium glutamate.
Bulcke defended brand Maggi in a press conference, saying that Maggi noodles were safe for consumption and the company had the same quality standards everywhere in the world.
Nestle said Maggi noodles were being taken off the shelves due to an environment of confusion for the consumer.
Analysts are wary of the developments surrounding Maggi noodles, which contribute to about 25% of Nestle India’s revenue.
Reliance Securities downgraded the stock to “reduce” from “neutral” and said the ban of the noodles in various states and its domino effect elsewhere could shave off Maggi's volume by 15-25%.
“We believe, potential damage to margins on account of reduced sales, step up on brand spends, increased manufacturing, distribution (owing to product recall) and legal expenses will be in the range of 150 basis points and 250-300bps from our original operating margin estimates of 23%,” the brokerage said.
“We believe, potential damage to margins on account of reduced sales, step up on brand spends, increased manufacturing, distribution (owing to product recall) and legal expenses will be in the range of 150 basis points and 250-300bps from our original operating margin estimates of 23%,” the brokerage said.
Nestle India's shares hit a low of 5,718.20 and a high of 6,127 in the session. In afternoon trade, the stock was down about 1% at Rs 5,947.60.