Maggi export relief not significant, say analysts

Firm, however, says operating domestic production lines for export of the product is viable

Fast-moving consumer goods analysts tracking Nestle India said allowing the firm to export Maggi without permitting domestic sales would have no meaningful impact on the company.

The reason for this is the small percentage of exports that Maggi constitutes.

Exports for Nestle's Indian subsidiary in CY14, according to its annual report, constituted nearly seven per cent (Rs 644 crore or Rs 6.44 billion) of its total revenues of Rs 9,800 crore (Rs 98 billion).

Nestle follows a January-December accounting year.

Senior analysts estimate much of these exports were made up of milk and milk products, with Maggi constituting a small proportion of this.

They say the Bombay High Court order on Tuesday allowing Nestle to export Maggi makes no material difference to the company.

A Nestle India spokesperson said: "Operating the production lines for manufacture of Maggi noodles meant for exports is viable."

He declined to comment further on the details of production and exports of Maggi from India.

"While we are confident the Maggi brand will emerge stronger, it will take three to six months before the issue is resolved.

"We remain sellers on Nestle due to expensive valuations and lagging volume growth. We have cut CY15 earnings estimates by 15 per cent and CY16 earnings estimates by six per cent to factor impact of the ban," said Nitin Mathur, emerging markets consumer research analyst at Societe Generale.

Abneesh Roy, associate director, institutional equities, research at Edelweiss Securities, said Nestle primarily exported to those markets where there was a shortfall of company products.

This meant exports constituted a wide array of products and were not necessarily focused on Maggi alone. An e-mail sent to Nestle on the topic remained unanswered till the time of going to press.

Nestle, for the record, does not give a break-up of its exports.

The Indian subsidiary exports Maggi noodles directly to Canada, the UK, Singapore and Kenya and via third-party vendors to the US, Australia and New Zealand.

While Singapore, Hong Kong, Australia and New Zealand have okayed Maggi in tests conducted by them, Nestle's woes seem far from over.

Stock surged around five per cent on Tuesday on the BSE in line with other consumer stocks.

Analysts said this appeared unsustainable over the medium term.

At Tuesday's closing price of Rs 6,345.65, scrip traded at 39 times CY16 estimated earnings.

Though the stock has fallen 15 per cent from its 52-week high of Rs 7,499.95, analysts are adopting a wait-and-watch approach.