Hindustan Unilever raises royalties to UK parent company, CEO defends moves as strategic

INDIA – Hindustan Unilever, the Indian subsidiary of UK-based consumer goods company Unilever, has raised royalty payments to its parent company in appreciation for the immense value and competitive advantage that it gets from the relationship.

Moving forward, HUL will pay royalties of 3.45%, a slight increase from the 2.65% that the company has been paying for the past 10 years.

The new royalties are divided into brand and technology royalty payments comprising 1.95 of the company’s turnover and services fees which will be 1.48% of the turnover, according to Unilever.

“Royalty grants us the right to use Unilever-owned brands and access to Unilever’s cutting-edge technical knowhow, world class R&D and innovation capabilities,” said HUL CEO Sanjeev Mehta.

 “The service fees enable us to leverage Unilever’s global expertise and functional services.”

News of the planned hike in royalty payments was poorly received by investors leading to a 4% drop in the HUL’s share price at the Bombay Stock Exchange.

Mehta however defended his company’s move.  “These payments are justified and are in the overall interest of HUL,” Mehta told Economic Times in an interview.

 “I am very confident that once we start engaging with the investors, they will fully understand the merit of these arrangements”

Despite the negative reception, HUL’s new rate is still lower than most of Unilever’s multinational rivals in the country, including Nestle, Colgate, Procter & Gamble and Mondelez, all of which pay royalty of 5-8%.

 

Royalty grants us the right to use Unilever-owned brands and access to Unilever's cutting-edge technical knowhow, world class R&D and innovation capabilities.

Quarter 3 results beats estimates

HUL is raising its royalties at a time when it is performing well in the consumer goods market. According to its results for the financial year 2021–22, HUL’s turnover growth of 11% and underlying volume growth at 3% were significantly ahead of the market.

largest fast-moving consumer goods company also  announced its quarterly results (ending 31 December 2022) on 19 January 2023, where it reported a 16% jump in revenues and Underlying Volume Growth of 5%.

The company’s Foods & Refreshment division delivered 7% growth led by robust performance in Foods, Coffee and Ice-cream.

“Foods grew in high-teens with double-digit volume growth led by Jams, Ketchup and Unilever Food Solutions business,” Unilever said.

“Ice Cream had another strong quarter with double-digit growth,” the company added noting that its Tea business “continued its value and volume market leadership and delivered mid-single digit volume growth.”

To cement its leadership position in India’s food and beverage sector, HUL also launched a number of new products.  

The products launched include Red Label’s ‘Maa Care’ a new premium tea with 80% less caffeine, Bru ‘Instant Decoction’ coffee, Knorr ‘Korean Meal Pot’, and new flavours of Knorr Soup.

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