Mumbai, Jan. 22: FMCG giant Hindustan Unilever Ltd (HUL) today said it would pay a higher royalty to its Anglo-Dutch parent Unilever Plc in a phased manner.
The move will increase the company's royalty to 3.15 per cent of its turnover by March 31, 2018 from 1.4 per cent in a staggered manner.
The announcement led to the company's scrip plunging over 3 per cent on the bourses. On the National Stock Exchange, the scrip hit an intra-day low of Rs 463.40 before settling at Rs 480.90, a loss of 3.28 per cent over the previous close.
HUL, which announced the results for the quarter ended December today, said its directors had approved a proposal to enter into a new agreement with Unilever Plc for the provision of technology, trademark licences and other services to HUL.
The company has a technical collaboration agreement and a trademark licence agreement with Unilever. The technical pact provides for the payment of 1 per cent royalty on net sales of specific products manufactured with technical inputs developed by Unilever. On the other hand, the trademark agreement provides for the payment of trademark royalty at 1 per cent of net sales on specific brands where Unilever owns the trademark and HUL is the licensed user.
At present, the total impact of both the agreements translates into a royalty of around 1.4 per cent of HUL's turnover.
HUL said Unilever had asked for a review of the royalty arrangements to ensure a fair recovery of costs given the need for increased levels of service and the consequent additional costs. The FMCG firm added that its parent was committed to provide support in terms of new products, innovations, technologies and services.
The HUL board, which took up the proposal today, decided to enter into a new agreement with Unilever effective from February.
Based on the agreement, the increase in royalty from February 1 this year to March 31, 2014 is estimated to be 0.5 per cent of the turnover, and thereafter in a range of 0.3-0.7 per cent in each fiscal, leading to a total estimated royalty increase of 1.75 per cent of turnover by March 31, 2018.
The company has reported a 16 per cent rise in net profit for the quarter ended December at Rs 871.36 crore against Rs 753.81 crore in the year-ago period. The performance was in line with analyst estimates. Though net sales rose to Rs 6,433.69 crore (Rs 5,844.31 crore), the Street was disappointed by a lower-than-expected volume growth at 5 per cent.