Nestle India up 3% as shareholders reject high royalty payment to parent Co

Nestle India stock price gained 2.8 per cent to Rs 2,515.65 apiece on the BSE in Saturday's special trading session after shareholders of the company rejected a company proposal to increase royalty payments to its Swiss parent Nestle.

The motion proposed to increase the royalty, paid to its parent, to 5.25 per cent of net sales, net of taxes, from 4.5 per cent at present. The increase was proposed at a rate of 0.15 per cent per annum.

However, about 71 per cent of public shareholders voted against the increase, the company said in an exchange filing.

Following the development, Nestle India stock moved higher on the bourses on Saturday, and was the top gainer on the benchmark S&P BSE Sensex. At 12:00 PM, the stock was up 2.5 per cent at Rs 2,508 per share as against 0.1 per cent rise in the Sensex index.

Meanwhile, financially, Nestle India reported a net profit of Rs 934.17 crore for the quarter ending in March, 2024 (Q4FY24), up 26.8 per cent from Rs 736.64 crore reported during the same period last year.

Total income for the fast-moving consumer goods (FMCG) company went up 8.84 per cent Y-o-Y to Rs 5,294.34 crore for January-March quarter, compared to Rs 4,864.22 crore reported during the same period last year.

That apart, Earnings before interest, taxes, depreciation and amortisation (Ebitda) climbed 21.8 per cent Y-o-Y to Rs 1,337 crore, while Ebitda margin improved by 270 basis points (bps) to 25.4 per cent.

"Earnings growth across all the quarters of FY24 (fifteen months) have been robust for Nestle India. On a high earnings base, we believe earnings growth over next two years would now be driven by Capacity addition led push; and Sweating assets of distribution expansion done in non-urban markets," said analysts at YES Securities.

This, along with products catering to RURBAN portfolio, is strengthening its position in rural areas (current contribution at 20-25 per cent of domestic topline) and  tier 2/3 cities. Besides, pick up in innovations (backed by R&D capabilities), is also catering to faster growth in the premium portfolio, the brokerage added.

"The stock currently trades at ~75x/65x FY25E/FY26E EPS and leaves little room for error on execution. We have not baked in the benefit from the new JV with Dr. Reddy's and introduction of Nespresso in our estimates. We thus assign a slightly higher multiple of ~62x (3yr/5yr avg fwd. multiple ~64x/66x) and roll-forward to March’26E EPS, arriving at a revised target price of Rs 2,420 (Rs 2,320 earlier), maintaining our REDUCE rating," YES Securities said.