A majority of Nestle India shareholders have voted against a proposal to increase the royalty payout to its Swiss parent company, Nestle SA. According to a stock exchange filing late Friday, 57.18% of shareholders rejected the proposal, including 70.8% of public shareholders.
The proposal sought to increase the royalty rate from 4.5% to 5.25% of net sales over a five-year period, with a 0.15% annual increment. This change was slated to take effect on July 1. Despite board approval in April, the shareholders’ decision halted the plan, affecting major products like Maggi instant noodles and Nescafe instant coffee.
Analysts viewed the decision positively. Abneesh Roy, executive director at Nuvama Institutional Equities, commented, “This is a short-term positive as there could potentially be cost savings due to no royalty hike. We don’t expect Nestle Global to cut down on R&D support and innovations for the India business, given that India is one of the most important consumer markets.”
The rejection reflects the increasing influence of shareholder concerns on company decisions. “This shows that the concerns of shareholders have to be taken seriously by companies, and other such plans would now need more thought and planning,” Roy added.
Nestle India had announced in 2019 that it would seek shareholder approval every five years for royalty payments to the parent company. The General Licence Agreement (GLA) grants Nestle India access to the Nestle Group’s intellectual property, including brands like Maggi and Nescafe, proprietary technology, and over 1,300 patents.
Following the announcement, Nestle India shares rose by 2.33% to ₹2,502.30 apiece as investors welcomed the shareholder decision. The broader issue of royalty payments by subsidiaries to parent companies remains contentious, with investors arguing that Indian subsidiaries often pay high royalties and significantly contribute to the brand value of their overseas parents.