Higher royalty, dull results take sheen off Hindustan Unilever

Consumer goods company Hindustan Unilever (HUL) said on Tuesday it had agreed to enter into a revised royalty deal with Unilever on technology, services and trademark licences provided by its Anglo-Dutch parent.

The new agreement will increase royalty costs, in a phased manner, to 3.15 per cent of total sales by March 2018, from the current 1.4 per cent of turnover for HUL. The increase in royalty cost in the period from February 1, 2013, to March 31, 2014, is expected to be 0.5 per cent of turnover, and thereafter in a range of 0.3-0.7 per cent of total sales in each financial year, HUL said.

The announcement, together with a disappointing set of numbers for the December 2012 quarter, pushed the HUL scrip down more than 6 per cent on the BSE.

HUL reported a 15.5 per cent increase in net profit at Rs 871.36 crore for the third quarter ended December 31, 2012 as compared to Rs 753.81 crore during the corresponding quarter previous fiscal.

The maker of Knorr soups and Lux soap said the company's net sales rose to Rs 6,433.69 crore in the third quarter as against Rs 5,844 crore during the same period in previous fiscal.

During the quarter, the company's domestic consumer business grew at 15 per cent with underlying volume growth of 5 per cent, which analysts said was the lowest in the last three years.

In December 2009, the government through Press Note 8, freed up caps for payments for foreign technology collaborations and royalty fees under the automatic route, including lump sum payments for transfer of technology, payments for the use of trademark and brand name. Foreign sponsors who earlier required government approval for charging royalty under the various heads were now free to charge any amount as royalty to their Indian subsidiaries.

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