Royalty payment by listed companies rises to Rs 10,779 crore in FY23: Sebi study

Royalty payments made by listed companies to their related parties (RPs) much than doubled successful magnitude implicit the past decennary with 233 firms shelling retired Rs 10,779 crore successful FY23 from Rs 4,955 crore successful FY14, a survey conducted by Sebi revealed connected Thursday.

The survey recovered that successful 1 retired of 4 instances, listed companies paid royalty to RPs exceeding 20 per cent of their nett profits.

Further, 1 retired of 2 times, listed firms that paid royalty, did not wage dividend oregon paid much royalty to RPs than dividend paid to non-RP shareholders.

The survey is based connected annual, company-level information, successful respect of 233 listed companies crossed sectors successful the country. These companies person made royalty payments, amounting to little than 5 per cent of turnover to their RPs, during the 10-year play from FY 2013-14 to FY 2022-23.

Royalty outgo mostly refers to information paid by a institution towards exertion transportation agreements oregon collaborations entered into with different company, oregon towards the usage of trademarks/ marque names of the different company.

In the Indian context, listed companies marque royalty payments to their holding companies oregon chap subsidiaries towards the purposes of marque usage, transportation of exertion know-how etc.

During the play (2013-14 to 2022-23), determination were 1,538 instances of royalty payments wrong 5 per cent of turnover of the institution -- not requiring bulk of number shareholder support -- by 233 listed companies.

Of these, 1,353 instances of royalty payments were by listed companies that made nett profits and 185 instances of royalty payments were by companies that made nett losses.

During FY14-23, determination were 185 instances of royalty payments by 63 companies that made nett losses. Such companies made royalty outgo of Rs 1,355 crore to their RPs.

Moreover, 10 companies incurred nett losses astatine slightest for 5 years portion paying royalty amounting to Rs 228 crore to their RPs.

In its study, Sebi has besides flagged concerns implicit the deficiency of disclosures arsenic good arsenic non-uniform disclosure crossed the companies to royalty payments made to related parties.

"Appropriate disclosures with respect to the rationale and complaint of royalty payments are not being provided by listed companies successful their yearly reports. Besides, classification of royalty outgo made towards the purposes of marque usage, exertion know-how etc. Is not being disclosed," Sebi said.

Further, 79 companies consistently paid royalty to their RPs during each the 10 years nether study. 
While aggregate royalty outgo by these companies kept gait with maturation successful turnover and nett profits till FY19, royalty payments tempered station FY19.

In the lawsuit of 18 companies, royalty payments outpaced some turnover and nett profits passim the period. Further, 11 retired of 79 companies consistently paid royalty exceeding 20 per cent of nett profits during each 10 years.

Over the past decade, royalty payments by listed companies to their RPs much than doubled successful magnitude. While the royalty payments grew substantially until fiscal twelvemonth (FY) 2018-19, specified payments tempered concisely station FY 2018-19, erstwhile these payments were brought nether regulatory ambit by requiring bulk of number shareholder support for royalty exceeding 5 per cent of consolidated turnover of the listed entities.

Additionally, Sebi has listed the issues flagged by proxy advisory firms connected royalty-related matters. These see a small correlation to the gross oregon profits of companies that made royalty payments. Further, the show of royalty-paying companies is not of a higher bid compared to their peers, including those who are not paying royalty.

"Independent fairness opinions by antithetic agencies connected royalty payments alteration importantly successful presumption of valuation. This suggests a precocious grade of subjectivity surrounding the valuation, and the fairness of royalty rates arrived upon," the survey said.

In lawsuit of MNCs, shareholders of the Indian subsidiary person small accusation connected the rates of royalty being charged from chap subsidiaries successful different geographies, it added.