Nestle India Board has approved an increase in the royalty rate paid to its parent company. In a statement, the company said, the Board has given its nod to a staggered increase in the royalty rate at 0.20 per cent over the next five years effective from January 2014.

This increases the royalty paid by Nestle India to Nestle S.A to 4.5 per cent from 3.5 per cent. The royalty is paid on third party sales and is net of tax. Nestle SA had asked for a review of the two-decade-old royalty rates, about two years back which was followed by a study conducted by McKinsey & Co.

Nestle India has a General License Agreement that allows it access to Nestle Group’s intellectual property rights including global portfolio of brands, proprietary science and technology including over 1,300 patents. Besides access to over 6,000 brands such as Nestle, Maggi and Nescafe, it also gives Nestle India access to technologies developed by the global network of 32 research and development centres. This includes the one recently opened at Manesar, which will help the company in localisation of global concepts. Nestle India said that its recent capacity investments of around Rs 3,000 crore have benefitted from this.

Chairman and Managing Director of Nestlé India A. Helio Waszyk said, “This will enable Nestlé India to continue to deliver long term sustainable profitable growth and create shared value for society and its shareholders.”

Two Indian firms-Bansi S. Mehta & Co. and KPMG did a “fairness review” of the McKinsey’s report and recommended similar ranges of royalty rates.

In a statement, the company said, “This increase 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 of India. It is also comparable to the royalty being paid by the Nestlé affiliates in similar countries. The royalty rate on exports will now be aligned to 4.5 per cent of sales,” it said.

meenakshi.v@thehindu.co.in

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