Havells India is yet another example of a company, apart from the 25 already stated by IIAS who are paying about 25% of profits as royalties in FY12 to foreign sponsors, that is paying royalties quite literally through its nose.
According to institutional investor advisory firm, IIAS, minority shareholders are being taken for a ride due to the rising royalty payments to promoters. IIAS reported 25 comapnies that have paid about 25% of their profits as royalties in FY12 to foreign sponsors. Havells India is yet another example of a company that is quite literally paying through its nose.
Havells India, on January 7, announced that one of its promoters QRG Enterprises has agreed to transfer Havells' brand name and trade mark to itself without any consideration, post March 2016. March 2016 is when QRG Enterprises and Havells India’s licensing agreement expires.
This announcement lead to a 3% rise in the stock on January 7, as the development is likely to improve the company’s bottom-line.
IIAS, however, is of the opinion that QRG should have transferred the brand name and trade mark immediately. It also says that QRG should stop charging royalty to promoters from the end of the current financial year itself.
Havells India has already paid about 1% of net sales as the trade mark fee to QRG Enterprises for using the 'Havells' brand since 2008. The large advertising and promotion cost though was incurred by the listed company itself. For instance, for FY12 alone, these expenses of Rs 1121 million amounted to 24% of the company's EBITDA.
"It is heartening to see Indian Companies taking cues to improve governance standards. In another instance recently, a Software and IT Services Company took shareholders' approval for payment of royalty/ brand fees to promoter company, although it is not mandatory as per current regulations. We see these initiatives as a positive step towards developing the corporate governance scene in India" said R Jayakumar, Executive Director, IIAS.
Havells India stock price
On November 21, 2014, Havells India closed at Rs 311.40, up Rs 4.90, or 1.60 percent. The 52-week high of the share was Rs 316.80 and the 52-week low was Rs 144.23.
The company's trailing 12-month (TTM) EPS was at Rs 7.77 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 40.08. The latest book value of the company is Rs 34.11 per share. At current value, the price-to-book value of the company is 9.13.
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