Day of flip-flops: Jubilant FoodWorks’ parent withdraws brand royalty decision within hours

By: | Updated: February 6, 2019 7:33 AM

Jubilant FoodWorks and Jubilant Lifesciences in late night BSE filings, however, clarified that “Jubilant Enpro Pvt Ltd (a promoter group company) has decided not to charge the corporate brand royalty of 0.25% of the consolidated revenues of the company and the same stands withdrawn”.

Jubilant firms, Domino’Pizza, Jubilant Group, Jubilant Group royalty payment,  Shyam Sunder Bhartia, Harishankar Bhartia, Jubilant FoodWorksThe Jubilant companies said in separate stock exchange notices that their respective boards approved the payments of a corporate brand royalty to Jubilant Enpro Pvt Ltd which owns the brand name Jubilant.

The Jubilant Group companies on Tuesday said they would be paying promoters 0.25% of annual consolidated revenues for using the ‘Jubilant’ brand name. The promoters include Shyam Sunder Bhartia and Harishankar Bhartia.

Jubilant FoodWorks and Jubilant Lifesciences in late night BSE filings, however, clarified that “Jubilant Enpro Pvt Ltd (a promoter group company) has decided not to charge the corporate brand royalty of 0.25% of the consolidated revenues of the company and the same stands withdrawn”.

Also read| Why Domino’s pizza is costlier now; Jubilant responds after anti profiteering penalty

Based on revenues in 2017-18, the payment works out to Rs 7.5 crore for Jubilant FoodWorks, Rs 1.2 crore for Jubilant Industries and Rs 18.9 crore for Jubilant Life Sciences.  JN Gupta, co-founder of proxy advisory firm Stakeholders Empowerment Services (SES), pointed out that it was the Domino’s franchise that drove sales at Jubilant FoodWorks. “It is the Domino’s brand which fetches the company the revenue. No one eats the pizza because it is Jubilant FoodWorks. There is no benefit associated with the Jubilant brand,” Gupta asserted.

He said the proposal should be put to vote as a special resolution since this transaction was not “in the ordinary course of business”. “Only minority shareholders should participate in the voting,” Gupta said. Incidentally, Jubilant paid 3.3% of net sales as franchise fees to Domino’s, an American restaurant chain.

Corporate watchers said promoters appropriating money for “brand value”, in some form or another, was becoming a trend. “While the government targets multinational corporations for royalty payments, the local promoters are taking away money from their companies in the name of brand development,” one senior executive said.

Experts say the promoter holding company must be forced to disclose to shareholders of the listed entities the amount it spends on brand building. Others say it is not too late for the Securities and Exchange Board of India (SEBI) to look at the issue of such royalty payments to promoters.”

Directors who vote in favour of such abusive related party transaction should be blacklisted,” they said.
Lamenting the weak corporate governance at Indian business houses, Gupta said investors would respond appropriately to such moves. “Promoters must understand management and ownership are different,” he said.

The Jubilant companies said in separate stock exchange notices that their respective boards approved the payments of a corporate brand royalty to Jubilant Enpro Pvt Ltd which owns the brand name Jubilant. “The royalty payment will enable the group to help protect, nurture and enhance the corporate brand name and the group’s image globally,” the statement on the BSE said.

Separately, the Jubilant FoodWorks stock lost 6.5% in Tuesday’s trade after the company was penalised by National Anti-Profiteering Authority (NAA) for not passing on the cut in GST rates. The stock closed at Rs 1,303 a share on BSE. The NAA found that Jubilant Food Work had profiteered to the tune of Rs 41.42 core during November 15, 2017 — May 31, 2018 period after the company raised the base price on several of its product to offset the impact of denial of input tax credit (ITC).

The GST Council had decided to reduce the GST rate on restaurants to 5% from 18% while denying ITC to them. The decision came into effect from November 14. However, NAA ruled that base price hiked on 170 of Jubilant’s products were more than required, and this led to denial of benefit of rate reduction to consumers.

The food service company said the NAA ignored the loss on account of withdrawal of input tax credit. The loss of the company due to input credit withdrawal was far higher than the price increase that was taken, and this wasn’t taken into account by the NAA. We are studying the order in detail and will be exploring all possible options for the future,” a company spokesperson said.

During Q3FY19, Jubilant FoodWorks posted a 46.2% year-on-year increase in net profit at Rs 96.5 crore, driven by a 14.6% same store sales growth (SSG) in Domino’s Pizza. Net Sales grew 16.8% y-o-y to Rs 929.05 crore. The company’s Ebitda margins rose 120 bps y-o-y in Q3FY19 to 18.4%, compared with 17.2% in Q3FY18.

The company operates 1,200 Domino’s Pizza outlets across 271 cities and 32 Dunkin Donuts stores in 10 cities. The NCR-based food service company was incorporated in 1995 as Domino’s Pizza Indian Pvt Ltd and changed its name to Jubilant Foodworks Ltd in 2009. It is part of the Jubilant Bhartia Group run by the Bhartia family which has interests in areas like pharmaceuticals, life science ingredients and drug discovery services, performance polymers.

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