Experts says Nestle will recover from Maggi hit

The revenue loss is likely to be around Rs 700 crore

The ban on sales of instant noodles Maggi is something that manufacturer Nestle India is going to forget in a hurry. 

Apart from a likely hit to the brand equity of Maggi, the revenue loss is likely to be around Rs 700 crore for the company.

“We expect one-time costs of Rs 420 crore and a revenue loss of Rs 700 crore, from around four months of Maggi sales in CY15. We expect Maggi to be back on shelves in three months from now, assuming timely Food Safety and Standards Authority of India (FSSAI) approvals,” broking firm Quant said in a recent note.

Going forward, we believe that Nestle should recover from this hit in CY16 and may gain further market share in the instant noodles division post re-launch, helped by its more stringent quality standards supported by an aggressive marketing campaign which competitors might find difficult to match, Quant added.

The FSSAI had on June 5, 2015, ordered Nestle India to withdraw and recall the nine approved variants of its Maggi Instant Noodles from the market having been found unsafe and hazardous for human consumption, and stop further production, processing, import, distribution and sale of the product with immediate effect. FSSAI had also asked Nestle to withdraw and recall Maggi Oats Masala Noodles with tastemaker for which risk/safety assessment has not been undertaken and product approval has not been granted.

According to a recent report by industry body Assocham, sale of instant noodles crashed as much as 90 per cent post the issues with Maggi. According to Assocham, instant noodles sales were around Rs 350 crore a month before the Maggi issue broke out and has dipped to around Rs 30 crore a month post the whole controversy. Brand consultants, however, believe that the issue is unlikely to have any long- term impact on the brand.

“If you look at the past, similar issues have cropped up with Cadbury and colas. But they have bounced back better than ever, and so, it should not be a difficult task for Maggi to recover lost market share after it is allowed to be sold in the Indian markets once again,” a brand consultant who did not wish to be quoted said.