HUL slips as royalty payments set to double in five years
The FMCG major, which reported a 15% increase in its net profit, announced that it will also enter into a new agreement with Unilever Plc (and entities of the Unilever Group) for the provision of technology, trademark licenses and other services to HUL.
“The new agreement envisages that the existing royalty cost of (approx) 1.4% of turnover will increase, in a phased manner, to a royalty cost of (approx) 3.15% of turnover no later than the financial year ending March 31, 2018, i.e., a total estimated increase of 1.75% of turnover,” stated a release issued by HUL.
Within minutes of the announcement, the shares fell to an intra-day low of R465.30, down 6.16% or R30.55. This was the biggest single-day fall in almost four years for the Indian major that boasts of brands across segments, including soaps, detergents, beverages, packaged foods and skin care.
By the end of the trading session, however, it recovered most of the lost ground to close at R481.55, down 2.88% or R14.30. The volumes also saw a huge spurt on Tuesday.
Experts tracking the counter say that the immediate knee-jerk reaction can be attributed to the increased royalty payment. Incidentally, the recent past has seen some other Indian companies also increasing the quantum of royalty payment to their respective parent entities.
“Our preliminary analysis suggests 3% and
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