Maruti Suzuki's royalty payments to its Japanese parent Suzuki are "extortive" and the amount paid has increased over six times per car sold over the past 15 years, proxy advisory firm IiAS has said.
However, Maruti Suzuki said the report has "no relevance to any issue before shareholders".
According to IiAS report, royalty payments aggregated 5.7 per cent of net sales and 36 per cent of profits before royalty in 2014-15.
"Over the past 15 years, royalty paid to Suzuki, has grown 6.6x to Rs 21,415 per car sold, while average sales realisation per car has increased only 1.6x.
"While Suzuki's consolidated R&D spend per vehicle (including motorcycles) averaged 4 per cent of sales, its royalty payments from Maruti are 6 per cent of net sales," the report said.
A Maruti Suzuki spokesperson said, "We have seen the IiAS report. It has no relevance to any issue before shareholders. These are the views of IiAS on royalty charged by a company. At this point this matter does not call for any comment".
Sources close to the company said while profit after tax and EBIDTA margins have more than doubled and stock price trebled since 2012, royalty ratio is almost unchanged.
There is negligible change in royalty all these years, while other parameters of business performance (profit, sales, market-share etc) have improved substantially.
Royalty as percentage of sales was 5.6 per cent in the first quarter of 2015-16 as compared to 5.4 per cent in 2011-12. This compares to EBIDTA ratio rising to 16.7 per cent from 7.6 per cent in 2011-12 and PAT (Profit After Tax) as percentage of net sales jumping to 9.1 per cent as compared to 4.7 per cent in 2011-12.
Also, stock price has risen to Rs 4,022 in April-June 2015-16 from Rs 1,348 in 2011-12.
After examining the Maruti's royalty payouts in the context of revenues, margins, and research and development (R&D) spends, IiAS said that Maruti's "royalty payouts are extortive".
In the report, IiAS said that royalty is typically charged for either the brand and or product technology.
"The basis for this charge is that the global brands have been developed outside India, as is the product research and technology. There is some merit to this argument, but the question is how much should be claimed," it added.
As per the report, Suzuki's R&D efforts do not appear to aid Maruti's margins or expansion.
"Maruti shareholders must ask the fundamental question: what is the right amount of royalty that must be charged? Royalty is not Suzuki's indelible right it must explain its coercive charges on Maruti's cash flow," it added.