Has Nestle Recovered from the Maggi Episode?

Nestlé India Ltd’s took a big hit after facing a heavy controversy regarding its superhit product Maggi, in the year 2015. The share price of Nestlé India tanked massively once this news surfaced. Gradually the dark cloud casted, moved away and the ban over the product lifted. But the question remains: Is Nestlé India returning back to ‘normal’?

The September quarter should be viewed as “normal course of business” for at least the ex-Maggi portfolio, say one market analysts. Maggi issues made the year-on-year comparison rather challenging to evaluate the company’s performance. Assuming Rs 500 crores worth of Maggi sales in September 2016 and Rs 650 crores in the September 2014 quarter, the ex-Maggi domestic portfolio seems to have declined 3 per cent versus the September 2014 quarter, analysts said in a post-results report on 28th October. The experts believe comparing numbers two years back is perhaps more apt given Maggi’s problems last year.

According to market experts one can change the assumptions on Maggi sales and arrive at a conclusion that ex-Maggi sales have done better than what the math suggests; however, that would mean that Maggi revival pace is slower. Either way, it is not a very pretty picture.

Since the Maggi event, the September 2015 quarter was the worst for Nestlé India. Its net domestic sales fell to Rs 1,588 crores. On that base, net domestic sales grew 38 per cent from a year earlier to Rs 2,190 crores for the September 2016 quarter. Total operating revenue rose 35.6 per cent to Rs 2,363 crores. On a sequential basis, domestic sales increased 5 per cent in the September 2016 quarter. But it’s worth noting that domestic sales had declined 2 per cent during the June quarter compared to the March quarter.

The operating profit margin declined a bit on a sequential basis. Net profit of the company increased about 17 per cent compared to the June quarter to Rs 269 crores. Even as it seems that satisfactory sales growth is still some time away, Nestlé India’s investors have little to complain about. The share price has moved up 17 per cent so far in 2016.

Hopes that Nestlé India’s sales will gain traction with the resolution of the Maggi issue have buoyed sentiments. New product launches have helped in the recovery too. The firm has launched around 25 new products or variants across categories in recent months.

Currently, Nestlé India share price trades at an expensive 57 times estimated earnings for the year 2016. The company’s financial year is January-December. Faster sales growth will help in maintaining this valuation.

Source   :   https://www.dynamiclevels.com/en/blog/has-nestle-recovered-from-the-maggi-episode