Nestle India shareholders reject royalty increase proposal

Shareholders’ decision boosts Nestle India stock

Nestle India Headquarters, where major decisions about the company’s future are made.

Shareholders in Nestle India have voted against a proposal to increase royalty payments to its Swiss parent company, Nestle. The company announced this decision late on Friday.

The rejected motion suggested raising the royalty rate from 4.5% to 5.25% of net sales, net of taxes. This increase was to happen gradually, at a rate of 0.15% per year. About 70.8% of public shareholders opposed this proposal.

Indian regulations classify this potential change as a related party transaction, so controlling shareholders were not allowed to vote.

Following the vote, Nestle India’s share price rose by over 3% on Saturday, reaching ₹2,518.95 per share on the Bombay Stock Exchange (BSE). Analysts believe this decision is beneficial for the company in the short term. Abneesh Roy, executive director of Nuvama Institutional Equities, said, “This is a short-term positive as there could potentially be cost savings due to no royalty hike. We will monitor if there is any revised proposal from the Board later, but for now, this is a positive.”

Despite the vote, analysts do not expect Nestle Global to reduce its support for research and development in India. “India is easily one of the most important consumer markets for any company and anyway it is getting 4.5% royalty. Also, Nestle has a local R&D unit in India,” Roy added.

In other news, Nestle India reported a 26.8% increase in net profit for the quarter ending March 2024, reaching ₹934 crore compared to ₹737 crore the previous year. Revenue from operations grew by 9.05%, from ₹4,831 crore to ₹5,268 crore. The company’s EBITDA margin also improved to 25.4% in Q4FY24.

Despite warnings about rising costs for key commodities like coffee and cocoa, Nestle India shares were trading 2.43% higher at ₹2,504.60 per share at 11:15 am on the BSE.