Nestle India Shareholders Pass Resolution To Maintain Status Quo On Current Royalty Rate

Nestle India shareholders approved continuing royalty payments to its parent company at the current 4.5% rate. This decision follows the rejection of a proposed increase earlier in 2024. The approval was secured with 99.54% votes in favor at the AGM.

In a related development, Nestle India said on Monday that its shareholders have endorsed the continuance of royalty charges to its parent firm at 4%. 5% of net sales. This follows a move by the company to propose an increase in the royalty rate which was turned down by the shareholders this year.

The approval was made during the company’s Annual General Meeting (AGM) that was held on 8th July 2024. A whopping majority of 99 percent. In the case of valid ballots, 54% supported the retention of the current royalty rate while only 0. 46% against the resolution.

This decision came at a time when Nestle India has experienced some volatility in its royalty payment regime. In May 2024, the shareholders had turned down a proposal to gradually increase the royalty being paid to the parent company, Société des Produits Nestlé by an increase of 15% annually over a period of five years. That proposal would have seen the royalty rate increase to 5 percent, which would have greatly impacted my company’s revenue. It should also have a minimum of 25% of its net sales by the end of the period.

After the rejection, Nestle India’s board of directors met last month to agree on the continuation of the existing 4. 5% royalty rate. The board then approved this decision to be forwarded to the shareholders of the company and this has been done.

The royalty, known as ‘general licence fees’ by the company, is to be paid to Société des Produits Nestlé S. A. , who is the licensor for Nestle India. This fee is expressed in terms of a percentage of the net sales of the products manufactured and sold by Nestle India under the existing GLAs.

This shareholder approval will guarantee that the current royalty structure will stay as aforesaid from July 8, 2024. The decision seems to be a compromise between extending adequate credit to the parent company for its IPR and technology, and controlling the drain of capital from the Indian subsidiary.

The result of this vote will be keenly observed by shareholders and other stake holders as well as other interested parties because it will act as a guide on how future multinational companies will structure royalty agreements with their Indian subsidiaries.

Also Read: Nestlé Talks Up the Sugar Content in Baby Foods, Denies ‘Racial Stereotyping’

The company remains a favourite among investors and one of the most actively traded stocks on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in the fast-moving consumer goods space in India.