Shareholders in Nestle India have rejected a company proposal to increase royalty payments to its Swiss parent Nestle, the company said late on Friday. About 70.8% of public shareholders voted against the increase. The resolution did not pass, with 57% of its India’s shareholders voting against the plan, the packaged foods maker said in a stock exchange filing on Friday.
The motion called for the royalty paid to its parent to climb to 5.25% of net sales, net of taxes, compared to the current level of 4.5%. The increase was proposed at a rate of 0.15% per annum effective from 1st July 2024.
Nearly a month ago, Nestle India’s board had approved the hike in royalty payout to its Swiss-based parent company. Nestle India in 2019 had said that it would seek approval of its shareholders every five years for royalty payments to parent company after receiving investor and proxy firm’s feedback on the issue.
Under Indian regulations, the potential change would be classified as a related party transaction, which means that controlling shareholders were not allowed to vote. The company did not say whether it intends to review the proposal.
Nestle India share price rallied over 3% on Saturday after the company’s shareholders rejected a proposal to increase the royalty payments to its Swiss parent. Nestle India share price gained as much as 3.01% to ₹2,518.95 apiece on the BSE.
Chairman calls the vote as sign of unanimity
The chairman of Nestle India, Zoel Amar, recently commented on the vote against the imposition of royalty payment. According to Mr. Amar, the vote was a sign of the unanimity among the shareholders of Nestle India and a testament to the strong management practices of the company.
Abneesh Roy, Executive Director & Head of Research Committee, Nuvama Institutional Equities said, “This is a short term positive as there could potentially be cost savings due to no royalty hike. We would monitor if there is any revised proposal from the Board later, but for now this is a positive. This also shows that concerns of shareholders have to be taken seriously by Companies and other such plans would now need more thought and planning.”
Q4 Insights
Released in late April, Nestlé India reported a 26.8% year-on-year (YoY) jump in net profit for the quarter ended March 2024, beating street estimates, helped by softer milk prices. The company posted a net profit of ₹934 crore in Q4FY24 as against ₹737 crore a year earlier.
Its earnings before interest, tax, depreciation and amortisation (EBITDA) stood at ₹1,337.7 crore, registering a growth of 21.8% from the year-ago period and was higher / lower than the ₹1,265 crore expectation.
The company had warned of “unprecedented headwinds” in prices of key commodities such as coffee and cocoa, with all-time-high prices and an ongoing price rally.
Nestle is a Swiss multinational food and drink processing conglomerate corporation. It is one of the largest food companies in the world, with a presence in 189 countries. Nestle produces a wide range of products, including dairy products, breakfast foods, beverages, confections, and infant foods.
