stock market Royalty payments by listed companies have more than doubled in a decade. 233 companies paid Rs 10,779 crore as royalty in FY 2022-23, which was Rs 4,955 crore in FY 2013-14. This has been said in a study by market regulator SEBI. The study found that one in four cases of listed companies paid royalties of more than 20 percent of net profits to their related parties. Moreover, once in two, royalty-paying listed companies did not pay dividends or paid more royalties to related parties than the dividends paid to shareholders.
Information obtained from annual reports of 233 companies
The study is based on annual reports, company-level information on 233 listed companies across all sectors of the country. The royalty paid by these companies to their related parties during the 10-year period from FY 2013-14 to FY 2022-23 is less than five percent of the turnover. Generally, royalty payments are made by a company for technology transfer agreements or collaboration with another company or for the use of the trademark/brand name of the other company. In the Indian context, listed companies pay royalty to their holding companies or subsidiaries associated with the holding company for use of brands, transfer of technology know-how, etc. According to the study, during 2013-14 to 2022-23, 233 listed companies paid royalty within five percent of the company turnover. The number of such cases stood at 1,538.
Expressed concern about this matter
The Securities and Exchange Board of India in its study has expressed concern over the lack of disclosures at the company level regarding royalty payments made to related parties as well as lack of uniformity in disclosures. “Listed companies are not making proper disclosures in their annual reports regarding the propriety and rate of royalty payments,” SEBI said. Moreover, the companies are also not disclosing whether royalty is being paid for use of the brand or for technological know-how.
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