Nestle Extends Losses as Maggi Controversy Snowballs

Sharemasterindia.com: Nestle shares extended losses on Thursday, falling as much as 6.3 per cent in opening deals. The stock dropped below the key 6,000 levels today, from a high of Rs 7,038 on May 28, 2015.

The selloff in Nestle comes amid a raging controversy around its Maggi noodles, which has become the subject of investigation by Food & Drug Administration or FDA across many states. Maggi is being scrutinized for high content of lead and mono-sodium glutamate or MSG, a taste enhancer.



On Wednesday, Delhi announced a "15-day ban" on sale of Maggi noodles and has asked Nestle to recall current stocks from the capital. The Indian Army, too, has issued an advisory asking soldiers to avoid Maggi.

The Food Safety and Standards Authority of India has advised all state governments to test samples of Maggi noodles, which has been caught in controversy since laboratory tests ordered by Uttar Pradesh food inspectors allegedly found eight times as much lead as permissible.

According to media reports, retailers such as Big Bazaar have pulled out Maggi noodles from their shelves.

Maggi noodles account for more than 20 per cent of Nestle's annual sales in India and the ongoing controversy can impact the company's bottom line, analysts say.

What should you do with Nestle shares:

Most analysts say investors should stay away from Nestle as long as the controversy does not settle down. According to market analyst Sharmila Joshi, Nestle shares are likely to take some more knock.

Rohit Shrivastava of Sharekhan, however, said that long-term investors wait for opportunities like this to buy shares like Nestle.

"These are short-term issues. You bet on the ability of Nestle to resolve the issue," he added.

Nestle's statement on BSE:

"We wish to state that we have till now not received any orders from any state/Centre FDA authorities to recall Maggi noodle products in the market except an order from the Uttar Pradesh FDA dated 30.04.2015 asking us to recall a batch of Maggi noodles manufactured in February, 2014 which had already reached the 'Best Before date' in November, 2014, Nestle said on Wednesday.

"We are co-operating with the authorities who are conducting tests and awaiting their results," the company added.

As of 09.45 a.m., Nestle shares traded 5 per cent lower at Rs 5,888 as against a 0.22 per cent drop in the broader Sensex.