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FMCG firms' royalty payments remain flat

Indian arms of multinational players push local innovations to stay relevant

Viveat Susan Pinto & Sameer Mulgaonkar  |  Mumbai 

Royalty as a percentage of sales for some key listed Indian arms of foreign consumer goods was actually flat in the past three years, shows an analysis by the Business Standard Research Bureau.

The spectre of royalty has dogged boardrooms of fast moving consumer goods (FMCG) companies, with foreign ones frequently charged with depriving minority shareholders of dividend by sucking out funds through payment for usage of their brands and trademarks. The analysis sought to test the extent of the occurrence. It found (HUL), Nestle India, Procter & Gamble Hygiene & Healthcare and had a marginal drop in their royalty payouts as a percentage of sales in the past two years, in contrast to the charge that their parents are quick to seek their pound of flesh when the opportunity presents itself.

Only oral care major Colgate-Palmolive, the data shows, has bucked the trend with royalty as a percentage of sales visibly up. AgroTech Foods, affiliated to US giant ConAgra, in contrast, saw its royalty move from 0.15 per cent in the year ended March 2010 to 0.19 per cent in FY11 and FY12, respectively. In other words, royalty as a percentage of sales for AgroTech was flat.

NOTHING ROYAL ABOUT IT

FY10

  Net sales Net profit Royalty Royalty as

% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 17,737.57 21,56.63 157.79 0.89 7.32
Nestle India 5,129.38 655 174.4 3.4 26.63
Colgate-Palm. 1,962.46 423.26 87.12 4.44 20.58
GlaxoSmith C H L 1,921.50 232.78 70.39 3.66 30.24
P&G Hygiene 7,74.22 178.85 41.81 5.4 23.38
AgroTech Foods 6,49.57 25.14 0.95 0.15 3.78

FY11

  Net sales Net profit Royalty Royalty as
% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 20,022.55 2,296.05 268.89 1.34 11.71
Nestle India 6,254.74 818.67 249.10 3.98 30.43
Colgate-Palm. 2,286.12 402.58 113.10 4.95 28.09
GlaxoSmith C H L 2,306.12 299.85 81.82 3.55 27.29
P&G Hygiene 904.45 179.77 52.52 5.81 29.22
AgroTech Foods 720.7 31.78 1.39 0.19 4.37

FY12

  Net sales Net profit Royalty Royalty as
% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 23,436.33 2,790.66 307.24 1.31 11.01
Nestle India 7,490.00 961.55 297.40 3.97 30.93
Colgate-Palm. 2,693.23 446.47 140.95 5.23 31.57
GlaxoSmith C H L 2,685.51 355.21 93.04 3.46 26.19
P&G Hygiene 1,001.91 150.88 51.69 5.16 34.26
AgroTech Foods 704.55 36.14 1.35 0.19 3.74
Compiled by BS Research Bureau Source: Capitaline

If one looks at royalty as a percentage of net profit, however, the picture is mixed. HUL, GSK and AgroTech Foods saw a marginal drop in their royalty payouts between financial years 2011 and 2012. Nestle saw a marginal increase, while Colgate and P&G both saw a consistent increase between financial years 2010 and 2012.

What does this signify? That Indian units of foreign continue to use global brands in the absence of a viable programme to develop local products. Barring HUL, which has a suite of locally developed products such as Annapurna, Kissan, Pureit, Fair & Lovely, Wheel, Lakme, Hamam, etc, most other have largely been dependent on brands from their parent’s international portfolio.

“What is the harm with that?,” asks Shirish Pardeshi, executive director and co-head, research, at Mumbai-based Anand Rathi Securities. “The parent company has the expertise available already. So why should here be duplicating effort? Instead, the focus has to be on how best to adapt these global brands to local conditions. Much of the attention of today is on this,” he says.

For instance, GSK launched biscuits, noodles and oats under the Horlicks franchise in India, something it hasn’t done elsewhere. Nestle has atta noodles and Bhuna masala and many other local flavours and tastes built into its Maggi franchise, the flagship brand of the Rs 7,490-crore company.

In personal care, the Rs 23,436-crore HUL has worked hard on Dove, the global cleansing care brand, to adapt it to local consumer needs. The brand is today a significant part of HUL’s personal products portfolio, driving premiumisation in the category. Personal products, incidentally, contribute 31 per cent to HUL’s topline after soaps & detergents, which contribute 48.1 per cent.

For most companies, this drive to aggressively adapt international products is part of their agenda on innovation, something that most are focusing on seriously these days. As part of this exercise, most are not shying away from even relaunching brands, if needed. Nitin Paranjpe, managing director & chief executive officer, HUL, recently said, “In the last one year, 60-65 per cent of our business would have been touched by a relaunch or a new activity to strengthen or refresh our brands. That is the impact of innovation and the intensity with which we are treating innovation.”

Zubair Ahmed, managing director of the Rs 2,685-crore GSK Consumer, in a previous interaction with Business Standard, had said, “We are working bottom-up to figure out where our existing brands could be taken.”

Analysts say this is all part of the company’s drive to stay relevant in the marketplace. As India emerges key for most consumer goods giants, localisation is increasingly becoming the name of the game. Nestle, says Abneesh Roy, associate director, research, at Mumbai-based brokerage Edelweiss, is building its first research and development centre in India, at Manesar in Haryana. HUL has a huge R&D hub in Bangalore.

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FMCG firms' royalty payments remain flat

Indian arms of multinational players push local innovations to stay relevant

Royalty as a percentage of sales for some key listed Indian arms of foreign consumer goods companies was actually flat in the past three years, shows an analysis by the Business Standard Research Bureau.

Royalty as a percentage of sales for some key listed Indian arms of foreign consumer goods was actually flat in the past three years, shows an analysis by the Business Standard Research Bureau.

The spectre of royalty has dogged boardrooms of fast moving consumer goods (FMCG) companies, with foreign ones frequently charged with depriving minority shareholders of dividend by sucking out funds through payment for usage of their brands and trademarks. The analysis sought to test the extent of the occurrence. It found (HUL), Nestle India, Procter & Gamble Hygiene & Healthcare and had a marginal drop in their royalty payouts as a percentage of sales in the past two years, in contrast to the charge that their parents are quick to seek their pound of flesh when the opportunity presents itself.

Only oral care major Colgate-Palmolive, the data shows, has bucked the trend with royalty as a percentage of sales visibly up. AgroTech Foods, affiliated to US giant ConAgra, in contrast, saw its royalty move from 0.15 per cent in the year ended March 2010 to 0.19 per cent in FY11 and FY12, respectively. In other words, royalty as a percentage of sales for AgroTech was flat.

NOTHING ROYAL ABOUT IT

FY10

  Net sales Net profit Royalty Royalty as
% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 17,737.57 21,56.63 157.79 0.89 7.32
Nestle India 5,129.38 655 174.4 3.4 26.63
Colgate-Palm. 1,962.46 423.26 87.12 4.44 20.58
GlaxoSmith C H L 1,921.50 232.78 70.39 3.66 30.24
P&G Hygiene 7,74.22 178.85 41.81 5.4 23.38
AgroTech Foods 6,49.57 25.14 0.95 0.15 3.78

FY11

  Net sales Net profit Royalty Royalty as
% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 20,022.55 2,296.05 268.89 1.34 11.71
Nestle India 6,254.74 818.67 249.10 3.98 30.43
Colgate-Palm. 2,286.12 402.58 113.10 4.95 28.09
GlaxoSmith C H L 2,306.12 299.85 81.82 3.55 27.29
P&G Hygiene 904.45 179.77 52.52 5.81 29.22
AgroTech Foods 720.7 31.78 1.39 0.19 4.37

FY12

  Net sales Net profit Royalty Royalty as
% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 23,436.33 2,790.66 307.24 1.31 11.01
Nestle India 7,490.00 961.55 297.40 3.97 30.93
Colgate-Palm. 2,693.23 446.47 140.95 5.23 31.57
GlaxoSmith C H L 2,685.51 355.21 93.04 3.46 26.19
P&G Hygiene 1,001.91 150.88 51.69 5.16 34.26
AgroTech Foods 704.55 36.14 1.35 0.19 3.74
Compiled by BS Research Bureau Source: Capitaline

If one looks at royalty as a percentage of net profit, however, the picture is mixed. HUL, GSK and AgroTech Foods saw a marginal drop in their royalty payouts between financial years 2011 and 2012. Nestle saw a marginal increase, while Colgate and P&G both saw a consistent increase between financial years 2010 and 2012.

What does this signify? That Indian units of foreign continue to use global brands in the absence of a viable programme to develop local products. Barring HUL, which has a suite of locally developed products such as Annapurna, Kissan, Pureit, Fair & Lovely, Wheel, Lakme, Hamam, etc, most other have largely been dependent on brands from their parent’s international portfolio.

“What is the harm with that?,” asks Shirish Pardeshi, executive director and co-head, research, at Mumbai-based Anand Rathi Securities. “The parent company has the expertise available already. So why should here be duplicating effort? Instead, the focus has to be on how best to adapt these global brands to local conditions. Much of the attention of today is on this,” he says.

For instance, GSK launched biscuits, noodles and oats under the Horlicks franchise in India, something it hasn’t done elsewhere. Nestle has atta noodles and Bhuna masala and many other local flavours and tastes built into its Maggi franchise, the flagship brand of the Rs 7,490-crore company.

In personal care, the Rs 23,436-crore HUL has worked hard on Dove, the global cleansing care brand, to adapt it to local consumer needs. The brand is today a significant part of HUL’s personal products portfolio, driving premiumisation in the category. Personal products, incidentally, contribute 31 per cent to HUL’s topline after soaps & detergents, which contribute 48.1 per cent.

For most companies, this drive to aggressively adapt international products is part of their agenda on innovation, something that most are focusing on seriously these days. As part of this exercise, most are not shying away from even relaunching brands, if needed. Nitin Paranjpe, managing director & chief executive officer, HUL, recently said, “In the last one year, 60-65 per cent of our business would have been touched by a relaunch or a new activity to strengthen or refresh our brands. That is the impact of innovation and the intensity with which we are treating innovation.”

Zubair Ahmed, managing director of the Rs 2,685-crore GSK Consumer, in a previous interaction with Business Standard, had said, “We are working bottom-up to figure out where our existing brands could be taken.”

Analysts say this is all part of the company’s drive to stay relevant in the marketplace. As India emerges key for most consumer goods giants, localisation is increasingly becoming the name of the game. Nestle, says Abneesh Roy, associate director, research, at Mumbai-based brokerage Edelweiss, is building its first research and development centre in India, at Manesar in Haryana. HUL has a huge R&D hub in Bangalore.

image
Business Standard
177 22

FMCG firms' royalty payments remain flat

Indian arms of multinational players push local innovations to stay relevant

Royalty as a percentage of sales for some key listed Indian arms of foreign consumer goods was actually flat in the past three years, shows an analysis by the Business Standard Research Bureau.

The spectre of royalty has dogged boardrooms of fast moving consumer goods (FMCG) companies, with foreign ones frequently charged with depriving minority shareholders of dividend by sucking out funds through payment for usage of their brands and trademarks. The analysis sought to test the extent of the occurrence. It found (HUL), Nestle India, Procter & Gamble Hygiene & Healthcare and had a marginal drop in their royalty payouts as a percentage of sales in the past two years, in contrast to the charge that their parents are quick to seek their pound of flesh when the opportunity presents itself.

Only oral care major Colgate-Palmolive, the data shows, has bucked the trend with royalty as a percentage of sales visibly up. AgroTech Foods, affiliated to US giant ConAgra, in contrast, saw its royalty move from 0.15 per cent in the year ended March 2010 to 0.19 per cent in FY11 and FY12, respectively. In other words, royalty as a percentage of sales for AgroTech was flat.

NOTHING ROYAL ABOUT IT

FY10

  Net sales Net profit Royalty Royalty as
% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 17,737.57 21,56.63 157.79 0.89 7.32
Nestle India 5,129.38 655 174.4 3.4 26.63
Colgate-Palm. 1,962.46 423.26 87.12 4.44 20.58
GlaxoSmith C H L 1,921.50 232.78 70.39 3.66 30.24
P&G Hygiene 7,74.22 178.85 41.81 5.4 23.38
AgroTech Foods 6,49.57 25.14 0.95 0.15 3.78

FY11

  Net sales Net profit Royalty Royalty as
% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 20,022.55 2,296.05 268.89 1.34 11.71
Nestle India 6,254.74 818.67 249.10 3.98 30.43
Colgate-Palm. 2,286.12 402.58 113.10 4.95 28.09
GlaxoSmith C H L 2,306.12 299.85 81.82 3.55 27.29
P&G Hygiene 904.45 179.77 52.52 5.81 29.22
AgroTech Foods 720.7 31.78 1.39 0.19 4.37

FY12

  Net sales Net profit Royalty Royalty as
% of NS
Royalty as 
 % of NP
            In Rs crore
Hind. Unilever 23,436.33 2,790.66 307.24 1.31 11.01
Nestle India 7,490.00 961.55 297.40 3.97 30.93
Colgate-Palm. 2,693.23 446.47 140.95 5.23 31.57
GlaxoSmith C H L 2,685.51 355.21 93.04 3.46 26.19
P&G Hygiene 1,001.91 150.88 51.69 5.16 34.26
AgroTech Foods 704.55 36.14 1.35 0.19 3.74
Compiled by BS Research Bureau Source: Capitaline

If one looks at royalty as a percentage of net profit, however, the picture is mixed. HUL, GSK and AgroTech Foods saw a marginal drop in their royalty payouts between financial years 2011 and 2012. Nestle saw a marginal increase, while Colgate and P&G both saw a consistent increase between financial years 2010 and 2012.

What does this signify? That Indian units of foreign continue to use global brands in the absence of a viable programme to develop local products. Barring HUL, which has a suite of locally developed products such as Annapurna, Kissan, Pureit, Fair & Lovely, Wheel, Lakme, Hamam, etc, most other have largely been dependent on brands from their parent’s international portfolio.

“What is the harm with that?,” asks Shirish Pardeshi, executive director and co-head, research, at Mumbai-based Anand Rathi Securities. “The parent company has the expertise available already. So why should here be duplicating effort? Instead, the focus has to be on how best to adapt these global brands to local conditions. Much of the attention of today is on this,” he says.

For instance, GSK launched biscuits, noodles and oats under the Horlicks franchise in India, something it hasn’t done elsewhere. Nestle has atta noodles and Bhuna masala and many other local flavours and tastes built into its Maggi franchise, the flagship brand of the Rs 7,490-crore company.

In personal care, the Rs 23,436-crore HUL has worked hard on Dove, the global cleansing care brand, to adapt it to local consumer needs. The brand is today a significant part of HUL’s personal products portfolio, driving premiumisation in the category. Personal products, incidentally, contribute 31 per cent to HUL’s topline after soaps & detergents, which contribute 48.1 per cent.

For most companies, this drive to aggressively adapt international products is part of their agenda on innovation, something that most are focusing on seriously these days. As part of this exercise, most are not shying away from even relaunching brands, if needed. Nitin Paranjpe, managing director & chief executive officer, HUL, recently said, “In the last one year, 60-65 per cent of our business would have been touched by a relaunch or a new activity to strengthen or refresh our brands. That is the impact of innovation and the intensity with which we are treating innovation.”

Zubair Ahmed, managing director of the Rs 2,685-crore GSK Consumer, in a previous interaction with Business Standard, had said, “We are working bottom-up to figure out where our existing brands could be taken.”

Analysts say this is all part of the company’s drive to stay relevant in the marketplace. As India emerges key for most consumer goods giants, localisation is increasingly becoming the name of the game. Nestle, says Abneesh Roy, associate director, research, at Mumbai-based brokerage Edelweiss, is building its first research and development centre in India, at Manesar in Haryana. HUL has a huge R&D hub in Bangalore.

image
Business Standard
177 22