Recent research by SEBI related to royalty payments by listed companies to related parties has shown some serious lack of transparency and governance issues. It analyzed data from 233 companies over FY 2013-14 to FY 2022-23. The study reveals certain troubling trends in regard to royalty payments, company performance, and interest of shareholders.
Trendy Findings :
Royalty Payments to Profitable Companies: 1 in every 4 listed companies paid over 20 per cent of their net profits as royalty to RPs.
Loss Making Companies: Even though they incurred losses, 63 paid a total of Rs 1,355 crore in royalties between FY 2014-23, while 10 paid Rs 228 crore over five years.
Stable Royalty Payers: 79 firms have paid royalties continuously over the 10-year period. Out of them, 18 paid royalties faster than their turnover and profits, leading to some companies reporting a 14.6% CAGR in royalty payments, higher than that of their revenue growth.
Concerned:
Performance Not Related Well: There was little evidence of any particular linkage between royalty payments and company performance.
Issues of Corporate Governance: The approach taken by a couple of companies in requesting for perpetual royalty payments approval generated apprehension with respect to long-term shareholder value.
Transparency Exposed: Companies made excessive payments under the headings of ‘Brand Usage Fees’ and ‘Management Fees’ without providing due justification to the shareholders.
Multinationals Practice: For MNCs, Indian subsidiaries never knew the kind of royalty rates the parent company or a subsidiary in other regions might be charging.
Thus, this study calls for the need for increased scrutiny over royalty payments, enhanced transparency, and better corporate governance to protect shareholder interests and fair practices.
Disclaimer: The information provided is for educational purposes only and does not constitute financial advice. We are not registered financial advisors. Please conduct your own research and consult a qualified advisor before making investment decisions. Any investment decisions you make based on this information are solely at your own risk.
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As stated in Bhagavad Gita :
सर्वकर्माण्यपि सन्न्यस्याद्यात्मनं सन्न्यसेत्।
Whatever you do, do it as an offering to Me.
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