Nestle India has decided to stop outsourcing the production of its Maggi instant noodles to a third party, in an apparent move to remain focused on improving the quality of noodles.
SAJ Food Products--the "lone third party producer" of Maggi noodles--will no longer be manufacturing the noodles that were banned by the country's food regulator for containing higher levels of lead and presence of monosodium glutamate (MSG) in tested samples.
"As part of a standard process, where we review our overall capacity every two years on the basis of volume projections, we took the decision to bring the co-manufacturing with SAJ to an end," The Economic Times quoted a Nestle India spokeswoman as saying.
Analysts believe that Nestle's move to cancel its 12-year contract with SAJ could be a part of its efforts to increase the quality of noodles.
"Generally, companies have their own production units for high gross margin product and contract manufacturing is given in the case of commoditised product. The move could be triggered by a need to bring higher quality focus within the company," said Nitin Mathur, research analyst, Societe Generale.
Earlier in August, the Bombay High Court had ruled in favour of the company and lifted a ban on the instant noodles imposed by the country's food regulator. The court had asked the Food Safety & Standards Authority of India (FSSAI) to "justify its ban" and ordered for fresh tests of the noodles at laboratories opted by it.
Following a ban on its popular Maggi noodles, Nestle India has witnessed its first quarterly loss in 17 years. It posted a loss of Rs 64.4 crore in the June 2015 quarter compared to a profit of Rs 288 crore in the same period last year.
The company's sales fell by over 19% to Rs 1,957 crore in the April-June quarter as against Rs 2,432 crore in the corresponding quarter a year ago. The company also saw a one-time loss of Rs 452 crore during the quarter.