Colgate seeks nod from shareholders for royalty payment to parent

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New Delhi | Published: June 5, 2019 12:15:56 AM

The promoter and promoter group own 51% of the equity in Colgate-Palmolive India while the remaining is with institutions and the public.

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Colgate-Palmolive India on Tuesday said it will seek shareholders’ nod to be allowed to pay up to 5% of its annual net sales to parent company Colgate-Palmolive Company USA for a period of five years. The FMCG major has been paying around 5% of its sales as royalty.

Other subsidiaries of multinational corporations that have sought similar approvals include ABB India, which last month won shareholders’ approval allowing it to repatriate 4% of its annual consolidated turnover for 2018 as royalty to the parent company — ABB Schweiz AG. The resolution received 86.6% votes in favour while 13.3% voted against it.

In April, Nestle India’s shareholders approved the resolution allowing the foods major to pay 4.5% of net sales as royalty to parent firm. Castrol India also received shareholder approval with a dominant majority. Since this is a related party transaction, promoters must abstain from voting.

While the Securities and Exchange Board of India’s (Sebi) rule requiring shareholder approval to pay over 2% of revenues in royalty was scheduled to kick in from April 1, it will now kick in on June 30, 2019.

The delay has been attributed to apprehensions on the part of the finance ministry the rule might upset MNCs and hurt FDI (foreign direct investment) inflows. While the Kotak committee had suggested a threshold of 5% of revenues, Sebi decided on a much lower level of 2%.

The promoter and promoter group own 51% of the equity in Colgate-Palmolive India while the remaining is with institutions and the public. While individuals hold 18.84%, foreign portfolio investors and insurance companies own 12.66% and 8.63% shares respectively.

Colgate-Palmolive India reported a 15.1% year-on-year rise in net profits to `775.6 crore in FY19. Net sales stood at `4,432 crore in the year ended March 31, 2019 against `4,300 crore in FY18, up 3% y-o-y.

According to proxy advisory firm IIAS, Colgate-Palmolive India paid `185 crore (excluding royalty tax) or 4.4% of company’s net sales to parent company for financial year 2018-19. The firm pointed out there are 16 MNCs that paid over 2% of revenues as royalty during FY18. “Aggregate royalty paid by 30 MNCs during the financial year ended in 2018 was `7,823 crore,” IIAS noted.

Colgate-Palmolive’s ordinary resolution stated: “…approval of the members of the company be and is hereby accorded for continuation of the payment of royalty to Colgate-Palmolive Company, USA, promoter company, being a related party, up to 5% (five percent) of the total net sales of the products sold by the company as per the terms and conditions of the licensing agreement as executed/amended/renewed from time to time, inclusive of withholding taxes, with effect from July 1, 2019… The aforesaid approval of members shall be sought every 5 (five) years.”

Earlier this year, Jubiliant Foodworks withdrew a proposal to pay royalty to promoters just a few hours after making the announcement following immediate investor concerns.

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