FMCG major Nestle India on Friday said its board has approved an increase in royalty payment by 0.15% per year for the next five years to its parent firm, thereby enhancing it to 5.25% of sales from 4.5% now.
“The board, on the recommendation of the audit committee, approved the payment of general licence fees (royalty) by the company to Nestlé SA at the rate not exceeding 5.25%, net of taxes, of the net sales of the products sold by the company,” Nestle said in an exchange filing.
The move will see Nestle’s royalty rate among the highest in the domestic FMCG industry, with companies such as Colgate-Palmolive India, Procter & Gamble Hygiene and Healthcare, and Hindustan Unilever (HUL) paying royalty of 4.5%, 5% and 3.45% of their turnover, respectively, according to analysts.
In CY2022, Nestle India had paid a royalty of Rs 750 crore on a turnover of Rs 16,790 crore, its annual report for the period shows. Its annual report for FY23, which has switched to an April-March period, is not out yet.
HUL’s royalty payout in FY23 stood at Rs 990 crore (on a turnover of Rs 58,154 crore), Colgate paid Rs 229 crore as royalty, while P&G Hygiene and Healthcare paid a royalty of Rs 212 crore in FY23, their annual reports show.
Nestle said on Friday that it had recommended the royalty increase for approval of the members of the company by means of a postal ballot.
While royalty payments have been a contentious issue in India Inc for years, Indian subsidiaries of global companies have defended the move from time to time.
Last year, Nestle India’s CMD Suresh Narayanan said royalty payouts were done for operational support and manufacturing capabilities. “Nestle SA owns 2,000 brands, which we at Nestle India get access to. The science and technology we borrow from them helps us in our growth,” he said.
Shares of Nestle India ended down 0.43% on the BSE on Friday at Rs 2,538.10. The royalty announcement came after market hours.