One out of four times, listed cos paid to related parties royalties exceeding 20% of net profit: Sebi study

The study found that loss-making companies had paid Rs 1,355 crores in royalties to related parties over this ten year period.

One out of four times, listed companies  paid royalty to related parties (RPs) exceeding 20 percent of their net profits, found a SEBI study.

There were 102 instances where royalty paid to RPs was between 40-100 percent of net profits and 74 instances where royalty to RPs exceeded 100 percent of net profits made by the companies.

The Securities and Exchange Board of India (SEBI) published the results of a study it had done on listed companies making royalty payments to its RPs.

Royalty payment generally refers to consideration paid by a company towards technology transfer agreements or collaborations entered into with another company, or towards the use of trademarks/ brand names of the other company. In Indian context, listed companies make royalty payments to their holding companies or fellow subsidiaries towards the purposes of brand usage, transfer of technology know-how and so on.

The SEBI study analysed data of ten years, between FY14 and FY23, of 233 listed companies across sectors in India. Overall, there were 1,538 instances of royalty payments within 5 percent of turnover of the company (which does not require majority of minority shareholder approval) by 233 listed companies.

But, when the regulator looked at royalty payments made by companies that were profit making and loss-making, there were more interesting findings.

With companies in the black, the study found that a large part of the profits was being used to pay royalties, as stated earlier. Also, as the study found, one out of two times, listed companies that paid royalty, did not pay dividend or paid more royalty to RPs than dividend paid to non-RP shareholders.

When analysing consistent royalty payers, of which there were 79 companies, the study found that eleven out of them consistently paid royalty exceeding 20 percent of net profits during all the 10 years.

On loss-making companies, the regulator studied 183 instances of royalty payments made by 63 loss-making companies, and found that these companies made  made royalty payment of Rs. 1,355 crore to their RPs.