Nestle India’s board (NSE: NESTLEIND) has given the nod for a gradual escalation in the royalty payout to its Swiss-based parent company Société des Produits Nestlé S.A.
Over the next five years, the consumer goods giant will increase its payout to Nestlé S.A. to 5.25% of net sales, marking a rise from the current 4.5% annually. The updated royalty structure will take effect from July 1st, as outlined in a regulatory filing by the maker of Maggi noodles. This increment will be spread out over the course of five years, with a slight uptick of 0.15 percent each year compared to the previous year’s fee.
Maggi faced a nationwide ban for six months starting from June 2015 due to allegations of containing chemicals exceeding permissible limits. In response, the company was compelled to recall and dispose of 38,000 tonnes of Maggi noodles from numerous retail shelves. However, the ban was lifted in November 2015.
In the past six months, the company’s shares have surged by 10%, while over the span of a year, they have witnessed a significant 28% rise.
During the fourth quarter of the calendar year 2023, the FMCG giant observed a 4.4% year-on-year increase in net profit, totaling Rs 655.61 crore. Concurrently, its revenue for the same period soared by 8% year-on-year, amounting to Rs 4,600.42 crore.
In 2019, the Indian arm of the Swiss conglomerate had announced its intention to seek shareholder approval every five years for royalty payments to its parent company, following feedback from investors and proxy firms.
Consequently, Nestle India reevaluated its royalty payout structure to make it more transparent. At that time, the company had stated that although its general licensing agreements are regularly reviewed by an audit committee, the resolution had been adjusted to mandate shareholder approval every five years in compliance with relevant laws and regulations.
Last year, Hindustan Unilever Ltd, another major player in the consumer goods sector, increased its royalty payout to its European parent from 2.65% to 3.45% annually over a three-year period.
In 2023, Nestle India reported total sales of ₹16,790 crore, with a net profit of ₹2,390 crore. The revenue from product sales in the same year amounted to Rs 19,021.05 crore, marking a notable increase of 13.3% from the previous year.
In 2013, Nestle India’s board sanctioned a gradual hike in royalty payment by 0.20% per year over a five-year period to its parent company, elevating it to 4.5% of sales.
In another development, Nestle India announced that its board has given a nod to the appointment of Suneeta Reddy, the Managing Director of Apollo Hospitals Enterprise Ltd, as an Additional Independent Non-Executive Director. Reddy’s term will commence from April 5, 2024, spanning five consecutive years until April 4, 2029, subject to shareholders’ approval.