Nestle India royalty hike rejected: what changes in 2024

What shareholders voted on and why it mattered

Nestle India’s shareholders have voted against a proposal to increase the royalty paid to its Swiss parent, Nestle SA. The company, which sells brands such as Maggi, Nescafe and KitKat in India, had sought approval through a postal ballot and remote e-voting process. The proposal aimed to raise the general licence fee, also described as royalty, over a multi-year period. The outcome is notable because it reflects a clear pushback by minority shareholders on related-party payouts. It also sets the near-term royalty rate and provides clarity on costs linked to brand and technology use.

The vote outcome: 57% against the resolution

According to Nestle India’s stock exchange filing, the ordinary resolution did not pass because a majority voted against it. The filing cited that about 57% of shareholders voted against the plan, with figures reported around 57.17% to 57.18% across updates. The opposition was even stronger among public shareholders, where 70.8% voted against the proposed increase. The vote details underline that the rejection was driven largely by non-promoter shareholders, as the parent entity’s voting rights were not part of the minority approval process.

What the company proposed: 4.5% to 5.25% in five years

Nestle India’s board had earlier approved a plan to raise the royalty ceiling from the existing 4.5% of net sales to 5.25% of net sales. The increase was to be implemented in a staggered manner over five years, with a step-up of 0.15% of sales each year. The revised payout was planned to come into force from July 1, 2024. The recipient of the royalty payment is Société des Produits Nestlé S.A. (SPN), the licensor under the general licence agreements.

Board decision after the vote: royalty stays at 4.5%

After the shareholder vote, the Nestle India board approved the continuation of royalty payments at the existing rate. The company said the Board of Directors, on the recommendation of the Audit Committee, approved continuing the general licence fee at 4.5% of net sales, net of taxes. The company also disclosed the governance process around the decision, stating that only independent directors voted and executive directors recused themselves. This step formalised that the previously proposed increase would not be implemented following the shareholder rejection.

Market reaction: the stock moved up after the result

Despite the proposal being voted down, Nestle India’s shares rose after the result became public. The stock gained around 2.33% in the special trading session on Saturday to end at about ₹2,502.20 (also reported as ₹2,502.30), up ₹57. Separately, the shares rose about 3% in opening trade to hit a high of ₹2,614.20 on the BSE, according to the reported market update. The moves suggested that investors viewed the vote outcome as supportive for near-term profitability, given the royalty rate will remain unchanged.

Institutional investors and public shareholders led the opposition

The voting pattern highlighted the role of institutional investors in the final result. Institutional investors rejected the proposal, with 70.8% of institutional votes cast against it, as per the reported figures. Votes by institutional investors accounted for 80% of votes polled on the proposal. The ownership snapshot shared alongside the voting context noted that institutional investors hold 21.28% in Nestle India, while non-institutional investors hold 15.95%. The outcome indicates that large investors had a decisive influence in blocking the hike.

Proxy advisory input: IIAS flagged concerns on the proposal

The proposal also drew scrutiny from proxy advisory firms. A report dated May 3 from Institutional Investor Advisory Services (IIAS) advised shareholders to vote against the resolution. IIAS said the proposed increase was based on a McKinsey & Company study evaluating value brought by Nestlé S.A., but added: “We are unable to support the resolution.” This advisory stance likely shaped institutional voting and reinforced concerns around the rationale and comparability of the royalty increase.

Minority approval mechanics and governance debate

Commentary in the coverage pointed to the structure of the vote as a key factor. Shriram Subramanian, founder and MD of InGovern, told The Telegraph: “The royalty hike was unjustified and not comparable to any peers.” He added that since the proposal was to be voted by a simple majority of minority shareholders and the promoter parent company did not get to vote, the proposal was defeated. The episode adds to the broader governance discussion on related-party transactions and the burden of proof companies face when increasing payments to promoters or parent entities.

Key figures at a glance

What to watch next

For investors, the immediate implication is that Nestle India’s royalty expense rate remains at 4.5% under the existing arrangement. Any future attempt to revise the rate would likely require stronger disclosure on the basis of the increase and clearer alignment with shareholder expectations, given the pushback seen in this vote. The company’s filings also show heightened attention to process, including audit committee involvement and independent director voting, which could remain in focus for future related-party decisions.

Conclusion

Nestle India’s shareholders have rejected the company’s proposal to raise royalty payments to its Swiss parent, resulting in the royalty rate staying at 4.5% of net sales. The board has formally approved the continuation at the current rate, and the stock responded positively in subsequent trading sessions. The next key marker will be whether the company provides additional rationale or revisits the structure of any similar proposal in the future, as shareholder scrutiny of related-party payouts remains high.