How Nestle braved Maggi mess to emerge stron­ger than ever in past 4 years

Nestlé India has emerged stronger than ever in the past four years. The food and beverage major, that continues to dodge threats of a revival of the 2015 crisis, now stands on firmer ground, compared to its pre-Maggi ban days.

Nestlé’s financial performance in the first nine months of 2018 reflects its standing. Between January and September, its net sales and net profit touched all-time highs of Rs 8,337.4 crore and Rs 1,265.17 crore, respectively. Its operating profit margin, too, is higher than the pre-ban levels, at 24.62 per cent, compared to 20.23 per cent in January-September 2014 period. Similarly, net profit margin, too, stood higher at 15.07 per cent, compared to 11.72 per cent in January-September 2014.

During January-June 2018, Nestlé India’s return on capital employed (RoCE) stood at 62.28 per cent —  the highest in the past several quarters and higher than 62 per cent in 2014. In the past eight quarters, its RoCE remained less than 56 per cent. RoCE – a ratio of operating profit and capital employed — is a measure of a firm’s profitability and the efficiency with which its capital is employed.

In the past five years, the returns from Nestlé’s stock on the BSE remained significantly higher than the Fast-Moving Consumer Goods (FMCG) Index as well as the Sensex. During the medium-term five-year period that includes the 2015 Maggi ban fiasco, Nestlé India’s stock gave a return of 115 per cent, compared to 71 per cent from the Sensex and 81 per cent from the FMCG Index.

Its earnings per share (EPS) have overtaken all previous records. During January-September 2018, its EPS stood at Rs 13.12, compared to Rs 8.90 in the comparable period in 2014.

While benign commodity prices have helped improve its margin somewhat, analysts say the firm’s renewed vigour in revamping its portfolio, expanding distribution, and strengthening its key brands have played to its strengths since 2015. According to Abneesh Roy, senior analyst at Edelweiss Securities, Nestlé has constantly focused on premiumisation of its portfolio to further bolster its growth.

Keeping up the pace of launches, Nestlé India has further trotted out several products in quick succession - Maggi Special Masala Noodles, Maggi Dip & Spread, KitKat Dessert Delight Brownie Kubes, Nescafé E Smart Coffee Maker, and NesPlus Breakfast Cereal – since June 2018. Analysts at Motilal Oswal measured the contribution of new launches at 3 per cent on its domestic sales during January-June 2018 – higher than 2.8 per cent during the same period the previous year.

Activities and new launches have helped the world’s biggest packaged-food company maintain leadership positions in more than 85 per cent of the product categories that it is present in. Brands like Lactogen and Nan, (together 67.7 per cent), Cerelac (96.1 per cent), KitKat, Munch, and Milkybar (together 61 per cent), and Nescafé (51 per cent) are market leaders in their respective categories.

 Maggi has managed to regain its leadership position, with 59.5 per cent market share.

While the brand of instant noodles is once again under legal scanner, Harish Bijoor, founder-chief executive officer of Harish Bijoor Consults Inc, says it is unlikely to impact the firm like it did the last time around. “The Maggi brand has already achieved iconic status in the minds of millions of consumers in India. Consumers connect with it instantly as many of them have memories attached with it,” he said.