Maruti's royalty payouts to Suzuki extortive: report

New Delhi: Maruti Suzuki’s royalty payments to its Japanese parent Suzuki are “extortive” and the amount paid has increased over six times per car sold over the past 15 years, according to a report. Maruti Suzuki is the country’s largest carmaker.[caption id=“attachment_2025817” align=“alignleft” width=“380”]  Beefing up rural market. Reuters[/caption] Proxy advisory firm IiAS has said that royalty payments aggregated 5.7 percent of net sales and 36 percent of profits before royalty in 2014-15. “Over the past 15 years, royalty paid to Suzuki, has grown 6.6x to Rs 21,415 per car sold, while average sales realisation per car has increased only 1.6x. “While Suzuki’s consolidated R&D spend per vehicle (including motorcycles) averaged 4 percent of sales, its royalty payments from Maruti are 6 per cent of net sales,” it said in a report. The royalty is typically charged for either the brand and or product technology. “The basis for this charge is that the global brands have been developed outside India, as is the product research and technology. There is some merit to this argument, but the question is how much should be claimed,” the report said. After examining the Maruti’s royalty payouts in the context of revenues, margins, and research and development (R&D) spends, IiAS said that Maruti’s “royalty payouts are extortive”. According to the report, Suzuki’s R&D efforts do not appear to aid Maruti’s margins or expansion. “Maruti shareholders must ask the fundamental question: what is the right amount of royalty that must be charged? Royalty is not Suzuki’s indelible right - it must explain its coercive charges on Maruti’s cash flow,” it added. IiAS also noted that Suzuki benefited enormously from its partnership with the Indian government at a time when India was fiercely regulated, and displacing a largely monopolistic market was not difficult. “It was this partnership in its formative years that has given Maruti its edge,” the report noted. PTI