MUMBAI: Markets watchdog Securities and Exchange Board of India (SEBI) found in its recent study that many of the 233 listed companies in India that it analysed in the last one decade starting from 2014, paid over 20 percent of their net profit to related parties as royalties at several occasions.
At least one out of four occasions of royalty payments, these companies paid this excess royalties to related parties at the cost of dividend payouts or even while making losses, SEBI found.
In a statement on Thursday, the market regulator said its study was based on 233 listed companies across sectors during the decade ending FY23. Some of these companies paid royalty, amounting to under 5% of their turnover to their related parties, which doesn't require majority of minority shareholders’ approvals.
Excess royalty payments by listed companies to their related parties, including foreign parents, have been a contentious issue for sometime. The regulator is now planning stricter norms like cumulative royalty limits and sunset provisions to address the public shareholder concerns on this.
One of the striking findings of the SEBI research was there were as many as 1,538 instances of royalty payments by these 233 listed companies. Of these, 1,353 instances of royalty payments were by listed companies that made net profit, and 185 instances of royalty payments to related parties were by companies that made net losses.
Curiously, at least one out of four instances of royalty payments to related parties were amounted more than 20 percent of their net profits, during this ten year period ended 2023, the SEBI study found.
One out of two times to of these instances, these listed companies didn’t pay dividend to shareholders but paid more royalty to related parties,” the study said.
“Among the royalty paying companies which have been making net-losses, the study has found, that during fiscal 2014 through 2023, there were 185 instances of royalty payments by 63 companies that made net losses and their royalty payment to the related parties stood at Rs 1,355 crore. 10 companies incurred net losses at least for five years while paying royalty of Rs 228 crore to their related parties,” the SEBI report said.