Nestle back in reckoning

Nestle is most obviously a big gainer on the bourses today. From a two-week average of less than 9000 shares being traded, today in the morning trades alone, volumes have crossed 22,000 shares. The stock price is up strongly in the green, surging over 7% currently at Rs.6790 levels, with an intra day high of Rs.7000.

There was no doubt that Maggi would be back on the shelves but no one had expected to come back so soon. But it is. In a major boost to Nestle India, FSSAI-approved laboratory of Central Food Technological Research Institute (CFTRI) has found Maggi noodles to be in compliance with the country's food safety standards. The tests have revealed that have revealed that levels of lead and monosodium glutamate in the instant noodles are within permissible limits.

The company most certainly bore the brunt of the ban, which was so very evident in its performance for second quarter ended 30th June, 2015. Net sales for the quarter dropped 20% (YoY) at Rs.1934 crore. Apart from falling sales, there was an exceptional charge of Rs.452 crore which was on account of loss of stocks withdrawn including incidental costs thereto and other related costs. Apart from trouble in India, exports also showed a drop of 13% impacted by lower coffee exports to Russia which was partially offset by export of milk & nutrition products to Bangladesh.

The company ended the quarter with a net loss of Rs.64 crore compared to net profit of Rs.288 crore in Q2CY15. And for the six month ended 30th June 2015, net profit came in at Rs.256 crore, down 53%. It will take while for the company to recover from this Maggi issue and even if the new batches do get cleared, the company will have to step up its advertising and marketing costs to once again rebuild the faith and trust lost in the brand.