Why royalty payout as a percentage of revenue needs to be relooked
Mint looked at seven companies that proxy advisory firms estimate to pay the most through royalty payments. In addition to the five mentioned above, Mint included two more companies, Procter and Gamble Health Ltd and Colgate-Palmolive Health Ltd, both of which pay more than ₹200 crore in royalty. All Indian companies pay royalties as a percentage of revenue.
To be sure, Nestle India's royalty payout as a percentage of revenue is not the highest among FMCG companies. Procter and Gamble Health, the Indian arm of P&G, the Ohio-headquartered consumer packer giant, paid ₹212 crore in royalty payments last year. This translates to 5.35% of P&G Health India’s revenue–more than 4.5%, 4.9% and 3.1% of revenue paid by Nestle India, Colgate, Palmolive India, and Hindustan Unilever Ltd, respectively.
P&G Health follows a July-June fiscal year. Finally, P&G's second listed Indian business, Gillette India Ltd paid ₹21.9 crore in royalty. But royalty as a percentage of revenue may not be the best indicator for two reasons.
Firstly, royalty as a percentage of revenue is low for all these seven companies. However, the royalty payout is significantly more when accounted for as a share of the net profit of each of these companies. Take the example of Maruti Suzuki India Ltd.
Maruti’s royalty payout to Suzuki Motor Corp. at ₹4,221.7 crore was 3.5% of its ₹1,20,674.6 crore in revenue in FY2023. However, the royalty payout by the country’s largest car maker was more than half (51.1%) of its net profit, which totaled ₹8,263.7 crore.
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