Investors reject Nestle India’s plan to hike royalty to parent

The proxy advisory firm said the proposed rate of 5.25% is higher than royalty payments by other MNCs in India.
Investors reject Nestle India’s plan to hike royalty to parent
Photo | Reuters

NEW DELHI: Institutional investors of Nestle India have rejected a proposal by the company’s board to raise royalty paid to its Switzerland-based parent.

The proposal to increase the royalty fee to company to Societe des Produits Nestle SA to 5.25% of the net sales in a staggered manner over five years from 4.5% per annum currently was rejected by 70.8% of the institutional investors.

Votes by institutional investors accounted for 80% of the votes polled on the proposal. Institutional investors hold 21.28% in Nestle, non-institutional investors hold 15.95%. The proposal was to raise royalty to Nestle India’s parent from 4.5% of net sales currently to 5.25% in a staggered manner, 0.15% every year over the next five years.

Company spokesperson said they have no comments on the issue. Earlier, proxy advisory firm IiAS had advised shareholders to vote against the proposal. IiAS said since rising revenue compensates the group by way of sales linked royalty, it doesn’t approve of a further hike in royalty rates as increased royalty will exceed revenue growth. It said as a good practice, it should have capped royalty payments as a percentage of profits.

The proxy advisory firm said the proposed rate of 5.25% is higher than royalty payments by other MNCs in India. “In Indian currency, Nestlé India’s revenue has grown at a CAGR of 11.5% over last five year. Assuming a growth rate of 12%, aggregate licence fees for next five years comes to Rs 6,090 crore at existing rate of 4.5% of net sales and Rs 6,700 crore at revised rates, an increased payout of Rs 610 crore over five-year period,” said IiAS report.

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