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Nestle India Ltd’s ratings unaffected by recent developments over ‘Maggi noodles’: CRISIL


Image for representation only. Image Source Nestle India

CRISIL’s ratings on the long-term loans and short-term debt programme of Nestle India Ltd (Nestle
India; rated ‘CRISIL AAA/Stable/CRISIL A1+’) remain unaffected by the recent developments regarding
the company’s instant noodles product under the Maggi brand. Local health authorities of various states
have raised issues that the product contains excessive levels of certain ingredients considered unsafe
for human consumption, and about the declaration, on the product label, that Maggi noodles contain
no added monosodium glutamate. Following bans on sales of this product by some state governments,
Nestle India, on June 5, 2015, announced that it has decided to temporarily withdraw Maggi noodles
from the market. On the same date, the Food Safety and Standards Authority of India issued an order
directing Nestle India to withdraw all variants of Maggi noodles from the market and to stop further
production and sale of the product until the above issues are addressed.
Maggi noodles is estimated to account for around 20 per cent of Nestle India’s revenue; therefore,
CRISIL believes that the stoppage of sale of this product will impact the company’s operating
performance over the near term. However, 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 is unlikely to have any significant adverse impact on
Nestle India’s other business segments. Nestle India also continues to benefit from technical support
from its parent, Nestle SA (rated ‘AA/Stable/A-1+’ by Standard & Poor’s), which is one of the world’s
largest players in the branded and packaged foods sector.
Furthermore, Nestle India’s financial risk profile is robust, marked by strong cash generation, minimal
debt, and ample liquidity. For 2014 (refers to calendar year, January 1 to December 31), the company
reported healthy operating profit (before depreciation, interest, and taxes) and net cash accruals of
over Rs.21 billion and Rs.8 billion, respectively; it had liquid surplus of around Rs.9.5 billion as on
December 31, 2014. CRISIL believes that 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 will nevertheless continue to monitor developments, including regulatory action, relating to
Nestle’s prepared foods and cooking aids business (dominated by Maggi), and the consequent impact
on Nestle India’s credit risk profile.

Below is the rating

Ratings Reaffirmed

Rs.18.0 Billion Long Term LoanCRISIL AAA/Stable (Reaffirmed)
Rs. 7.0 Billion Short Term DebtCRISIL A1+ (Reaffirmed)
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