2 weeks Ago
Mumbai : Listed companies paid royalty to related parties in excess of 20% of their net profits on one out of four occasions, flagging the need for change in norms, a study published by the Securities and Exchange Board of India (Sebi) Thursday showed. “The data suggests that though the royalty payments made by companies are reasonably within the stipulated threshold, such payments are unjustifiably high in terms of their profitability,” Sebi said. “While the necessity of royalty payment to be considered as an expenditure from the perspective of business growth is acknowledged, such payments when viewed through the profitability lens reveal too pressing an issue to be overlooked,” it said.
In one out of two occasions that listed companies paid such levels of royalty, they did not pay dividends, or paid more royalty to related parties than dividend paid to other shareholders. The study asked whether companies that skip dividend payments but pay royalty be subject to enhanced scrutiny from shareholders. The regulator said there were 185 instances of royalty payments by 63 companies that made net losses.
In such instances, these companies made royalty payments of Rs 1,355 crore to related parties during FY14-FY23. Stock Trading Point & Figure Chart Mastery: A Comprehensive Trading Guide By - Mukta Dhamankar, Full Time Trader, 15 Years Experience, Instructor View Program Stock Trading Stock Valuation Made Easy By - Rounak Gouti, Investment commentary writer, Experience in equity research View Program Stock Trading Commodity Markets Made Easy: Commodity Trading Course By - elearnmarkets, Financial Education by StockEdge View Program Stock Trading Mastering Options Selling: Advanced Strategies for Success By - CA Manish Singh, Chartered Accountant, Professional Equity and Derivative Trader View Program Stock Trading Algo Trading Made Easy By - Vivek Gadodia, Partner at Dravyaniti Consulting and RBT Algo Systems View Program Stock Trading Technical Trading Made Easy: Online Certification Course By - Souradeep Dey, Equity and Commodity Trader, Trainer View Program Stock Trading Derivative Analytics Made Easy By - Vivek Bajaj, Co Founder- Stockedge and Elearnmarkets View Program Stock Trading Macroeconomics Made Easy: Online Certification Course By - Anirudh Saraf, Founder- Saraf A & Associates, Chartered Accountant View Program Stock Trading Technical Analysis Demystified: A Complete Guide to Trading By - Kunal Patel, Options Trader, Instructor View Program Stock Trading Options Trading Course For Beginners By - Chetan Panchamia, Options Trader View Program Stock Trading Technical Analysis for Everyone - Technical Analysis Course By - Abhijit Paul, Technical Research Head, Fund Manager- ICICI Securities View Program Stock Trading Options Trading Made Easy: Options Trading Course By - Anirudh Saraf, Founder- Saraf A & Associates, Chartered Accountant View Program Stock Trading Complete Guide to Stock Market Trading: From Basics to Advanced By - Harneet Singh Kharbanda, Full Time Trader View Program It sought views on whether there should be additional regulatory requirements for loss-making royalty payers. Typically, listed companies make royalty payments to the ir holding companies or fellow subsidiaries—referred to as related parties—towards the purposes of brand usage and transfer of technology.
Currently, shareholder approval for royalty is required if payment to a related party exceeds the threshold of 5% of consolidated turnover. Some royalty-paying companies pay less than 5% to more than one related party without requiring shareholder approval, while the cumulative payment to all related parties together is much in excess of the regulatory threshold, Sebi said. It sought views on whether rules should be changed so that the threshold applies to cumulative royalty pay-out to multiple related parties.
The regulator also raised concerns about companies at times seeking shareholder approval for royalty payments in perpetuity. It suggested the need for sunset provisions in royalty agreements between the royalty-paying company and its parent company so that payments are not for perpetuity. Sebi’s analysis is based on annual, company level data, in respect of 233 listed companies across sectors in India.
These companies have made royalty payments, amounting to less than 5% of turnover to their related parties, during the 10-year period from FY14 to FY23. (You can now subscribe to our ETMarkets WhatsApp channel ).
