Technically, Nestle (CMP: 6011) has to sustain above 6500 for any upper movement to 7200-7500 zone (6500 may proved to be strong supply/resistance zone going ahead).
On the downside, 5700-5500 zone may offer positional support/strong demand zone in the near term. Consecutive closing below 5500, it may further fall to 5100-5000-4600-4400-4200-3800-3200 zone in the worst case scenario.
Near term trading zone may be 5500-6500.
Bottom Line: Technical Trading Levels
| SL</>25 | FROM SLR | |||||||||
| NESTLE | CMP | 6012 | ||||||||
| T1 | T2 | T3 | T4 | T5 | T6 | T7 | SLR | |||
| Strong > | 6575 | 6826 | 6932 | 7085 | 7210* | 7349 | 7430 | 7505 | <6500 | |
| Weak < | 6500 | 6250 | 6108 | 5880 | 5700* | 5615 | 5500* | 5100-5000 | >6575 | |
As we all know, Nestle India has plunged nearly 15% for the last few trading sessions amid countrywide controversy on "Maggi". In its own CEO"s language, the "Maggi" brand along with overall image of the company has suffered tremendous shaking (damage) in the past few weeks and they were forced to recall all the stocks of Maggi from the market. This particular brand has contributed around 20% of overall revenue of Nestle India and has nearly 70% of market share (instant noodles). Practically, consumers trust was shaken so badly amid extensive media coverage, majority of the consumers are returning the product (including other brands of instant noodles) to shops in a near panic situation.
There may be many arguments for & against the present controversy regarding "Maggi", but FSSAI is particularly concerned about one of the Maggi variety (Oats), which was introduced in the market without alleged approval protocol by Nestle India. Question may be raised as why FSSAI was silent so long ?
On the other hand, PR & media handling by the company is extremely poor so far and its too little & too late. Perhaps, being a Swiss MNC company, controlled by its Swiss conservative CEO ( who are media shy & generally are not used to such media limelight and public outrage), they may not understand fully the Indian psychology, media culture and vested interests behind such controversy. This may be also a big drama to break the "Maggi" dominance, since long no one could capture the "Maggi" market. Now various other controversies are also erupting about other products marketed by Nestle India.
Nestle India may fight back in various courts of laws against the allegations and subsequent bans of "Maggi" in various states. One thing is clear, that they are not pro-actively chasing the allegations right now. Perhaps, they will wait for some months to settle the dust amid lots of negative media news flows and might prefer for some cooling down of the whole controversy. Their primary objective will be to regain the trust of its consumers first.
But it got support from an unexpected quarter---our own Baba Ramdev (no doubt a superb entrepreneur in his own way) , who reportedly offer the CEO of Nestle to relaunch/re-brand "Maggi(Lead/MSG)" with "Ayurvedic Maggi"----"Meri Healthy Wali Maggi".
Be it collaboration with Ramdev or not, one thing is clear that Nestle India need to relaunch the brand "Maggi" in some form of new avtars to regain the trust of Indian consumers. So, we may shortly forget about "Lead/MSG Maggi" and hear about brand new " Ayurvedic Neem Maggi/ Aloe Vera Maggi/Kerala Maggi" etc based on leafy vegetables, which may sound more delicious and does not contain any so called hazardous chemicals at all for "Ayurvedic savvy" mass Indian consumers.
We should not forget that Nestle is a big MNC having strong financial muscle. The whole controversy is putting a negative image about brand India & its theme of "Ease Of Doing Business", specially for a product (Maggi), which we are consuming for the last 30 years without any reported health hazard. Already, our PMO has sought all the files from its respective ministries about this controversy as par reports.
But, FSSAI should ensure that all packaged food products in India do have their appropriate specific ingredients/micro chemicals labeling in their packing along with some type of FDC/FSSAI like approval on it & any possible health hazards signs (just like on tobacco products) as standard protocols in developed countries. Ultimately, common peoples of India should not be treated as "guinea pigs", be it MNC(s) or Indian Companies.
Being an expensive scrip (both in absolute & PE terms), majority floating shares of Nestle India are probably in strong hands (institutions & HNI), who did not panicked so much till now and that's why, the scrip damage is limited so far.
Going ahead, Nestle India may be another example of legendary Buffett's principle of "buying a good business or an excellent company in distress/momentary crisis in an unusual circumstances". Over the next few quarters, Nestle India may put all its might to resolve this crisis and make sure that this will not be a permanent cyclical problem as India, being an important & big market for them and for the sake of overall damage control of its global image too. Already, Nepal, Singapore etc has put import alert/ban of selling from Nestle India, specially for "Maggi" products.
As par quick BG metrics, current fair valuation may be around 6100 & projected ones may be around 6300-6500 (FY:16-17; even after possible downgrading of median estimated EPS because of current Maggi controversy).
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | LONG TERM | SHORT TERM | MEDIAN VALUE | 200-DEMA | 10-DEMA |
| NESTLEIND | 122.87 | 294.27 | 46.52 | 6092.66 | 6090.43 | 6091.55 | 6494.24 | 6489.49 |
| NESTLEIND | 129.65 | 378.13 | 46.52 | 6258.50 | 6256.21 | 6257.36 | 6494.24 | 6489.49 |
| NESTLEIND | 136.8 | 485.9 | 46.52 | 6428.76 | 6426.41 | 6427.58 | 6494.24 | 6489.49 |
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