The royalty payments made by Maruti Suzuki India Limited to parent company Suzuki Motors has seen significant increase over the past decade.
From 13% of their profit paid as royalty in 2005-06, Maruti paid 36% of their profit as royalty to Suzuku in 2014-15. The past 15 year has seen royalty paid by Maruti to Suzuki increase by more than six times. In layman’s terms, the last time Maruti Suzuki paid royalty to Japan’s Suzuki, it was INR 21,415 per car sold in India and exports – even as sales realization per car increased 1.6 times
Maruti Suzuki’s expenses on royalty during the period 2014-15 stood at INR 2,767 crores which Investors Advisory Services (IiAS) has termed as ‘extortive’.
The report explains that actual R&D expenses are averaged at 4% of sales while royalty payments average at 6% of net sales. Royalty payouts from Maruti to Suzuki stood at INR 677.7 crores in 2008-09 and increased to INR 1,016.8 crores in 2009-10. In 2010-11, these payouts stood at INR 1,892.5 crores and steadily increasing year after year to INR 2,767 crores in 2014-15.
Use of Suzuki’s technology is what Maruti pays for in terms of royalty however, the rising percentage is what is causing some concerns as per the IiAS report. Though these payments have no direct bearing on shareholders the amount of royalty being charged is being assessed.