Royalty: Lost in translation

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Mumbai | Updated: November 10, 2014 2:13:42 AM

Royalty received by multinational corporations (MNC) from their India subsidiaries...

At roughly 41.43 billion yen, the amount was nearly 40% of SMC’s net income in FY14.At roughly 41.43 billion yen, the amount was nearly 40% of SMC’s net income in FY14.

Royalty received by multinational corporations (MNC) from their India subsidiaries in FY14 went up less than they would have hoped for, thanks to a sharp depreciation in the Indian rupee, reports Nitin Shrivastava in Mumbai. The top ten India-listed MNC subsidiaries saw their aggregate royalty and related expenses increase by 11.30% to R4,675 crore in FY14 because a weaker local currency meant much was lost in translation.

However, given that several MNCs have upped the rates at which they earn royalty, most of them —Unilever Plc, Bosch, Nestle and ABB, Holcim made decent money.

Click here for graph

Most Indian subsidiaries of MNCs pay out royalty in local currency terms. However, Maruti denominates the payment in yen on a per-car basis and the amount accounts for a significant share of SMC’s global profits. Maruti paid Rs 2,486 crore or 5.75% of net sales, as royalty to SMC in FY14, close to the R2,454 crore it paid out in FY13.

At roughly 41.43 billion yen, the amount was nearly 40% of SMC’s net income in FY14.

A few MNCs have, in recent years, altered the terms for royalty payments. Swiss major Holcim—parent of subsidiaries ACC and Ambuja– now pays out 1% of sales up from 0.65% earlier. As such, despite an 11% fall in the rupee, against the Swiss Franc, and weaker sales at its subsidiaries, Holcim made much more in FY14 with an 80% jump in royalty earnings of CHF 42.7 million. Hindustan Unilever has said it will gradually scale up its royalty payments to 3.15% of its turnover, by FY18; in FY18 payments amounted to 1.85% of net sales, up from 1.45% in FY13. Unilever Plc earned Euro 67 million in FY14, a 19.7% increase despite the fact that Euro on an average appreciated by 15.76% against the rupee.

However for Bosch – the third largest royalty receiver – the royalty and related payments rose just 2.93% due to a sharp 13.48% fall in Indian rupee against the Euro in 2013; Bosch India paid Rs 410 crore, up 16.8% over 2012. Nestle and ABB saw their royalty income drop marginally by 2-3%, although their Indian subsidiaries paid out nearly 7% more in 2013.

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