Maggi soup: Nestle stock tumbles; wipe out Rs 8,000 cr investor wealth in 10 days

Shares of FMCG major Nestle India tumbled 10 percent in early trade Wednesday, as the raging controversy over the quality of its high brand equity noodles ‘Maggi’, and several states initiating action against it have raised concerns among the investors about its impact on the company’s performance in the near term. At 11.15 am, Nestle India shares were down 7.8 percent at Rs 6,279 with 32,000 shares changing hands on the BSE as against two-week average volume of over 5,000 shares. From 21 May, when the company issued a clarification to the BSE on the raging controversy, the company’s market capitalisation has eroded Rs 8,021 crore till date. Only today, the decline has been a whopping Rs 6,642 crore. [caption id=“attachment_2276594” align=“alignleft” width=“380”]  Reuters[/caption] According to analysts, the Maggi brand accounts for 20-25 percent of the company’s total revenue from instant noodles in India. “While final outcome of these probes may take time, these developments would have a negative impact on Nestle’s near-term operational performance as Maggi noodles contribute over 20% to revenues,” foreign brokerage firm CLSA said in a report. “While the probe impacts only noodles, this could have an implication even for products like pasta, ketchups etc. due to common branding. Medium to long-term impact would however be dependent on the final outcome of the probe and Nestle’s strategy to address issues around product safety, change brand perception etc,” the report said. On Tuesday, the Kerala government announced banning the sale of the product through state-owned outlets, and Haryana state has ordered laboratory testing of samples. The centre has now decided to summon the company after the Food and Drug Administration in Uttar Pradesh first found dangerously high level of lead content in Maggi, and ordered filing of an FIR. The performance of the stock on the bourses has been mixed since the outbreak of controversy in the last week of May. In fact, the Nestle India stock surprisingly gained 2 percent on Tuesday when the Sensex plunged nearly 700 points in a broad-market sell-off. The recovery was mainly on the back of a statement issued to BSE a day before in which it said lead levels were well within the limits specified by food regulations and Maggi noodles are safe to eat. However, the stock corrected 2.7 percent and 2.6 percent on June 1 and May 29, but jumped nearly 4 percent on May 27. On May 21 & 22, the stock was up nearly 1 percent after the company’s clarification to the BSE claiming there has been no order to recall Maggi noodles.