Mumbai, March 22: Nestle India, the Rs 8,300-crore packaged foods giant, has decided to raise the royalty payout to its Swiss parent from 3.5 per cent to 4.5 per cent of sales, taking a cue from companies like Hindustan Unilever, ACC and Ambuja Cements.
The decision was taken at a meeting of the company’s board of directors today.
The royalty rate increase will be staggered at 0.20 per cent a year over the next five years effective January 1, 2014.
In a press statement today, Nestle India said the company had a general licence agreement (GLA) that gave it access to Nestle Group’s intellectual property rights, including global portfolio of brands, proprietary science and technology, extensive research and development capabilities and expertise on best practices.
The GLA also includes access to over 6,000 brands such as Nestle, Maggi and Nescafe and technologies developed by the global network of 32 research & development centres, including the one recently inaugurated at Manesar, Haryana, which will further assist in localisation of global concepts.
According to the company, its recent capacity investments of around Rs 3,000 crore have benefited from this.
Nestle India revealed that its parent had requested a review of the two-decade old royalty rates a couple of years ago and had subsequently buttressed its argument for a hike based on a study conducted by Mckinsey & Co.
The study was subjected to a fairness review by two Indian firms that included Bansi S. Mehta & Co. and KPMG, who independently used different valuation methods and recommended ranges of royalty rates which were similar to that of Mckinsey & Co.
“The increase (royalty payment) is based on the lower limit of the ranges established by the two Indian firms and is in line with the erstwhile guidelines of the government. It is also comparable to the royalty being paid by the Nestle affiliates in similar countries. The royalty rate on exports will now be aligned to 4.5 per cent of sales,” Nestle India added.
“This will ensure ongoing access to Nestle, having the largest food and nutrition R&D network globally,” A Helio Waszyk, CMD of Nestle India said.