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Barclays downgrades Nestle India shares

On June 3, the Delhi government imposed a ban on Maggi for 15 days.

Rahul Oberoi   New Delhi     Last Updated: June 4, 2015  | 12:35 IST
Barclays downgrades Nestle India shares

Nestle India shares tanked 12 per cent in the past five trading sessions on reports that Nestle's Maggi noodles tested positive for higher-than-permissible lead levels.

The share price of Nestle India declined to Rs 6,191.10 on June 3 from Rs 7,064.85 on May 27.

On concerns over the Maggi row, Barclays downgraded Nestle India shares to Rs 5,149 from Rs 5,593 earlier. The global financial services firm believes that the sales of Nestle will be impacted in the near-term due to temporary ban on Maggi by different states and product recalls or other remedial measures, if required, could put further pressure on the margins of Nestle India.

Future Retail and Kendriya Bhandar has temporarily stopped sale of Maggi noodles through their stores.

On June 3, the Delhi government imposed a ban on Maggi for 15 days.

As per media reports, sales of Maggi fell 40-60 per cent in certain regions. Several states have initiated testing on random samples of Maggi noodles. Nestle India has said that products have been shown to be safe in tests at both internal and external laboratories.

Barclays in a research report said, "Prepared dishes (sold under the Maggi brand) constitute around 30 per cent of sales (of which noodles are about 60-70 per cent of sales). Sales have increased by 21 per cent CAGR over the past 10 years (sales contribution rising by 1,100 basis points) but have remained weak over the past two years - a trend that is likely to persist near-term (impacted by rising competition and muted consumer environment)."

"At 35 times, 2016E EPS, Nestle India shares are trading at a 20 per cent premium to peers and above its historical average of around 30 times. We lower our earnings forecasts by around 6 per cent and our target multiple to 28 times, cutting our price target to Rs 5,149," the report said.

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