Nestle India’s board has approved a staggered increase in royalty payout to the company’s Swiss parent Société des Produits Nestlé S.A.
(The Company had in 2019 announced that it would seek approval of it’s shareholders every five years for royalty payments to it’s parent company.)
- Royalty will increase from current 4.5% of net sales to 5.25%
- It would be increased in a staggered manner over the next 5 years by 0.15% p.a
- The new royalty fee will kick in from July 1, 2024
Increase in royalty payment to parents in general are controversial but not unexpected.
Nestle India has a strong operating margin of around 23%. Therefore, after the initial concerns, the royalty increase would get accepted and ignored and investors would continue to focus on the business performance; therein Nestle remains one of the best focused franchise.