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Nestle India’s royalty increase plan denied by majority shareholders.

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In 2019, following feedback from investors and proxy firms, the company announced plans to seek shareholder approval every five years for royalty payments to the parent company.

Nestle India’s majority shareholders reject proposal to increase royalty payout to Swiss parent, with 57.18% voting against the resolution, according to a May 17 stock exchange filing. In April, the company announced intentions to raise royalty fees from 4.5% to 5.25%.

Nestle India
Source: Mint

In 2019, the company announced plans to seek shareholder approval every five years for royalty payments to the parent company, based on feedback from investors and proxy firms. The resolution proposed a starting royalty rate of 4.5% of net sales, increasing by 0.15% annually, with shareholder approval sought for the next five-year period from July 1, 2024.

Navigating Nestle India: Recent Developments and Financial Insights

FMCG giant’s Q4 FY24 net profit rises by 26.73% to Rs 934 crore, while revenue from Indian operations for Nestle’s Swiss arm increases by 9.05% to Rs 5,268 crore compared to the year-ago period.

Nestlé India’s EBITDA margin grew by 2.41 percentage points to 25.4% in FY24’s final quarter. The board proposed a final dividend of Rs 8.50 per equity share (face value Re 1 each) for the fifteen months of FY24, totaling Rs 819.53 crore. Additionally, Nestle India partnered with Dr. Reddy’s Laboratories for nutritional solutions.

The joint venture will be established with Dr. Reddy’s holding 51% and Nestlé India holding 49%. Nestle India retains the option to raise its stake to 60% after six years at fair market value, while Dr. Reddy’s will maintain a minimum 40% stake post the exercise of the call option.

IIAS’s report stated, “The proposed increase in royalty payments to 5.25% of net sales over a five-year period starting July 2024, based on a McKinsey & Company study evaluating Nestlé S.A.’s value contribution, lacks our support.” The report highlighted Nestlé India’s revenue growth surpassing other geographies’ growth by 4.6% versus 0.03% over the same period.

It also noted that Nestle SA’s R&D expenditure has remained steady in the last ten years, with India’s royalty payments constituting over 4.5% of total R&D spending, despite only contributing 2.1% to global sales.

The proposed 5.25% maximum rate exceeds other MNCs’ royalty payments in India. Nestlé India’s revenue has grown at a CAGR of 11.5% over five years. Assuming a 12% growth rate, license fees for the next five years amount to Rs 6,090 crore at the current 4.5% rate and Rs 6,700 crore at the revised rate, resulting in a Rs 610 crore increase over the period.

Shareholders approved Suneeta Reddy’s appointment as an independent non-executive director, effective from April 5, for a consecutive five-year term, not subject to retirement by rotation.

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