Wabco India has decided to increase royalty payments to its parent.
Wabco India has decided to increase royalty payments to its parent. Till now, WABCO India was paying royalty and fees for technical services, the combined amount translating into 1.6% of domestic turnover, this now effectively increases to 4.5% of domestic turnover (4% royalty for technical know-how plus 0.5% for brand). Given that bulk of exports are to other group entities, royalty is applicable to domestic sales only.
Wabco India contributes to 10% of Wabco group turnover and 15% of operating profits. It had originally started as a JV between Wabco and TVS. While Wabco had bought out TVS’s stake in 2009, it was allowed to use TVS trademark in the market till 2012. FY12 was the first year when it paid the royalty to parent, which is now being increased.
Wabco has a dominant position in braking industry (both in India and globally) which entails high technology. The company derives this edge from the parent which globally spends 6% of turnover on R&D (negligible R&D spend by Wabco India). As per management, other WABCO group entities also pay similar royalty (3-5% of sales depending on the localisation) and India is now catching up. These increased royalty payments also reflect a faster transfer of patented technology to India — Anti-lock braking systems (ABS) is being localised and going forward they expect faster adoption of new products like air disc brake, electronic stability control due to regulation (where WABCO India will benefit from parent’s direct inputs).