Nestle India does not intend to raise royalty payout beyond 4.5 percent, the company’s Chairman and Managing Director Suresh Narayanan told The Financial Express.
The remark comes even as shareholders were waiting to see whether Nestle India will seek minority shareholders’ approval to pay over 4.5 percent in royalties. Royalty is a sum paid to a patentee for use of a patent.
“There has been no discussion on this,” Narayanan said.
After Nestle India announced December quarter results, brokerage houses including JP Morgan and ICICI Securities said updates on the royalty structure will be closely watched. “Consensus is interpreting this as a precursor to a royalty increase proposal,” ICICI Securities said in a post-results report.
CLSA, however, noted that the company would have to seek shareholder approval regarding its royalty payout. As per the Securities and Exchange Board of India (SEBI), from 2019-20 local units of global multinationals will require approval from ‘majority of minority’ shareholders in case they intend to make royalty payments beyond two percent of consolidated revenue.
According to the report, even if Nestle India plans to stick to 4.5 percent royalty, it will require shareholders’ approval. CLSA’s estimates suggest that every one percentage point change in royalty impacts earnings by 4-5 percent for companies such as Nestle India.
“As a responsible corporate citizen, we will continue to comply with all relevant rules and regulations with respect to the existing arrangement where currently no changes are foreseen,” Nestle India told the newspaper.
In 2014, the board of Nestle India had approved a 100 bps increase in royalty paid to parent Nestle SA to 4.5 percent through a staggered increment of 20 basis points (100 bps=1 percentage point) each over the next five years.
Narayanan said technology, brands and processes used by Nestle India belong to the global parent and these are of global standard adapted locally in the country. “There is no patented technology that India has put forward,” he added.