Sales and profit at MNCs is catching up with royalty payouts, says IiAs

Sales and profit at multinational companies (MNCs) is catching up with royalty payouts, said proxy advisory firm IiAs. In the last few years, royalty payments, as a percentage of profits, remained high despite tepid growth in earnings.

In FY17, 31 MNCs paid about Rs 77.8 billion, which accounted for almost 20 per cent of their pre-royalty pre-tax profits.

“The most tangible measurement of this benefit is that the MNCs outperform other companies in their relevant industry indices — in revenues, profits, or both. While this benefit was not visible in the past, the pace of growth in pre-royalty pre-tax profits is now closer to that of royalty. This reflects on the MNCs’ increased absorption capacity for royalty payments,” said IiAS.

The proxy advisory firm said royalty payment was a “legitimate expense” and MNCs based in India benefit from having “a globally-recognised brand and access to technology”.

It said the Nifty MNC index tends to outperform others, which showed that investors value the benefits of having a global parent.

However, even at current levels, royalty payments “continue to remain high” and MNCs should provide shareholders the basis of such payments.