Maruti’s royalty payout to its parent company Suzuki can be termed extortive says analyst, payouts have increased by 6 times per car sold over the last 15 years.
According to liAS, royalty payouts have aggregated 5.7 percent per sales and 36 percent of profits before royalty in 2014-15. Royalty paid to Suzuki by Maruti over the past 15 years has increased by 6.6 times to Rs. 21,415/- per car sold, while per car average sales realisation has increased just 1.6 times. However Maruti Suzuki has said that it does not have any relevance to any issue before shareholders.
Reports suggest, that while Suzuki spend an average 4 percent sales per vehicle’s consolidated R&D, its royalty payouts from Maruti are 6 percent of net sales. Spokespersons from Maruti though made it clear that they have gone through the reports of liAS and that its their own views regarding royalty payouts. They also mentioned that there is no relevance to any issues before the shareholders and also went on to say that the report does not require any comments.
Royalty as percentage of sales was 5.6 percent in the first-quarter of 2015-16 as of 5.4 percent during 2011-12. Comparing this to EBIDTA ratio rise to 16.7 percent from 7.6 percent in 2011-12 and profit after tax (PAT) percentage of net sales increasing to 9.1 percent from 4.7 percent in 2011-12. Along with this, increase in stock price to Rs. 4022/- in April-June 2015-16 from Rs. 1348/- in 2011-12.
Sources from the company did mention that the profits after tax and EBIDTA have more than doubled, while the royalty ratios have remained almost unchanged. They also said that the change if any is negligible as compared to other business parameters like profits, sales and market share, etc. which have improved substantially. After examining Maruti’s royalty payouts in revenues, margins and R&D spends, liAS reported that Maruti’s royalty payouts can be termed ‘Extortive’.
