HUL hikes royalty payment to Unilever by 80 bps to 3.45% of turnover

HUL Board approves new Royalty and Central Services arrangement with Unilever group

The Board of Directors of Hindustan Unilever Limited (HUL) on January 19 approved the proposal to raise royalty payment to Uniliver Group, the parent company of the Indian firm.

HUL will now enter a new arrangement with Unilever group entities for the provision of technology, trademark licenses and services to HUL.

The new royalty and central services arrangement, which envisage a staggered increase of 80 basis points (bps) over a period of three years, is likely to come into effect on February 1, 2023, for a period of five years.

Under the new agreement, the royalty and central services fees will increase from 2.65 percent (FY22) to 3.45 percent of turnover - 45 bps increase in effective cost for February to December 2023, 25 bps increase in effective cost for calendar year 2024, and 10 bps increase in effective cost from January 2025.

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The new agreement will signed as the current technology, trademark license and central services agreement of HUL with Unilever group expires this year.

The agreement gives HUL the right to use Unilever-owned trademarks, technology, corporate logo, and gained access to the central services provided by Unilever group. The new arrangement will ensure that HUL continues to receive the technology, services and intellectual property support from Unilever.

Crudely speaking, extra royalty payment means shareholders will be left will lower cash, and hence is not a good news for them. This new arrangement is subject to appropriate regulatory approvals.

Before approving, HUL said, the Board took into consideration the findings of an independent external assessment and concluded that the proposed arrangement proved to be "competitive within the range when compared against relevant comparable transactions as identified in the independent external benchmark".