Popular FMCG company Nestle India announced on Friday that its board had approved raising the royalty payment to its parent company by 0.15% annually for the next five years, increasing it from 4.5% of sales to 5.25%.
The company paid general licence fees (royalty) to Nestlé SA at a rate not to exceed 5.25%, net of taxes, of the net sales of the products it sold, according to an exchange filing from Nestle. The approval was granted by the board based on the audit committee’s recommendation.
As a result of the move, analysts predict that Nestle’s royalty rate will rank among the highest in the domestic FMCG sector, with businesses like Colgate-Palmolive India, Procter & Gamble Hygiene and Healthcare, and Hindustan Unilever (HUL) paying royalties of 4.5%, 5%, and 3.45% of their turnover, respectively.
Based on a turnover of Rs 16,790 crore in CY2022, Nestle India paid a royalty of Rs 750 crore, according to its annual report for that year. It has not yet released its annual report for FY23, which now runs from April to March instead of April to March.
According to their annual reports, P&G Hygiene and Healthcare paid a royalty of Rs 212 crore in FY23, Colgate paid a royalty of Rs 229 crore, and HUL paid a royalty of Rs 990 crore (on a turnover of Rs 48,154 crore).
On Friday, Nestle announced that it had submitted a recommendation for the royalty increase for the company’s members to consider through voting by mail.
In spite of the fact that royalty payments have long been a divisive topic in India Inc., occasionally Indian subsidiaries of international corporations have supported the decision.
The CMD of Nestle India, Suresh Narayanan, stated
The CMD of Nestle India, Suresh Narayanan, stated last year that royalties were paid out in exchange for manufacturing and operational support. We at Nestle India have access to 2,000 brands owned by Nestle SA. Our progress is aided by the science and technology we acquire from them, the speaker stated.
Nestle India’s stock closed Friday at Rs 2,538.10, down 0.43% on the BSE. The announcement about the royalty was made outside of market hours.
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