share Royalty payments by market-listed companies have more than doubled in a decade. 233 companies paid Rs 10,779 crore as royalty in FY 2022-23, which was Rs 4955 crore in FY 2013-14. This has come to light in a study by stock market regulator SEBI. The study revealed that in one out of four cases, listed companies paid royalty of more than 20 percent of the net profit to their related parties. Moreover, once in two, royalty-paying listed companies did not pay 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 listed companies across 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 percent of the turnover. Typically, royalties are paid by a company for technology transfer agreements or collaborations with another company or for the use of the other company’s trademark/brand name.
In the Indian context, listed companies pay royalties to their holding companies or subsidiaries associated with the holding company for use of brands, technology transfer, etc. According to the study, during 2013-14 to 2022-23, 233 listed companies paid royalty within 5 percent of the company’s turnover. The number of such cases was 1538.
Companies are not giving correct information regarding payment of royalty
In its study, SEBI has expressed concern over the lack of disclosures at the level of companies regarding royalty payments made to related parties as well as lack of uniformity in disclosures. SEBI said, “Listed companies are not making proper disclosures in their annual reports regarding the rationale and rate of royalty payments. Apart from this, the companies are not even disclosing whether the royalty is being paid for the use of the brand or for the technology.
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