share Royalty payments by publicly traded companies have more than doubled in a decade. 233 companies paid Rs 10,779 crore as royalties in FY 2022-23, which was Rs 4,955 crore in FY 2013-14. This has come to light in a study by stock market regulator SEBI. The study revealed that in one in four cases, listed companies paid royalties exceeding 20 percent of net profit to their related parties. Furthermore, about one in two times listed companies that pay royalties paid no dividends or paid higher royalties to related parties than they paid to shareholders.
When do companies pay royalties?
This study is based on annual reports and company-level information related to 233 publicly traded companies in all sectors of the country. The royalty paid by these companies to their related parties during the 10-year period from FY 2013-14 to FY 2022-23 is less than 5 per cent of the turnover. Typically, a company pays royalties for technology transfer agreements or collaborations with another company or for the use of the other company’s trademark or brand.
In the Indian context, listed companies pay royalties to their holding companies or subsidiaries associated with the holding company for the use of trademarks, technology transfer, etc. According to the study, between 2013-14 and 2022-23, 233 listed companies paid royalties within 5 per cent of the company’s turnover. The number of such cases was 1,538.
Companies do not provide correct information about royalty payments
In its study, SEBI has expressed concern over lack of disclosure at company level on royalty payments made to related parties as well as lack of uniformity in disclosure. SEBI said, “Listed companies do not adequately disclose the justification and rate of royalty payment in their annual reports. Apart from this, companies do not even reveal whether the royalty is paid for the use of the brand or for the technology.
Latest business news
