Why Nestle Shares Snapped 4-Day Losing Streak Today

Nestle shares, under pressure because of the controversy over Maggi noodles, snapped a four-session losing streak on Tuesday. The stock closed 7.5 per cent higher at Rs 5,953.80, outperforming the broader FMCG sub-index on the BSE, which ended flat.

Analysts said the rebound in Nestle was on account of value buying by investors. Nestle shares had become attractive after a 10.5 per cent fall over the previous four sessions, traders said.

Maggi noodles have been pulled off the shelves across the country after they came under scrutiny for high content of lead and mono-sodium glutamate or MSG (a taste enhancer). According to estimates, Maggi contributed over 20 per cent to Nestle's revenues and nearly 30 per cent to the company's bottom line in 2014.

Nestle, however, got a boost from a report by rating company Crisil, which said Nestle India's ratings remain unaffected by recent developments over Maggi noodles.

"Nestle India's business risk profile continues to be supported by its diversified revenue profile and its leading market position in several product categories, including milk products, beverages, and chocolates and confectionery. Crisil believes that the recent developments, with respect to Maggi noodles, are unlikely to have any significant adverse impact on Nestle India's other business segments," the rating agency said.

Crisil also pointed about the strength of Nestle India's parent, Nestle SA, which is one of the world's largest players in the branded and packaged foods sector.

"Nestle India's financial risk profile is robust, marked by strong cash generation, minimal debt, and ample liquidity," it added.

For 2014, Nestle India reported operating profit and net cash accruals of over Rs 2,100 crore and Rs 800 crore respectively; it had liquid surplus of around Rs 950 crore as on December 31, 2014.

"Nestle India's operating cash flows will remain sizeable even with reduced contribution from Maggi noodles and the company's strong (and nearly debt-free) balance sheet will withstand the impact of any temporary business pressures," Crisil noted.