Transparent royalty

On Tuesday, Hindustan Unilever Ltd’s (HUL) shares tanked after the company’s board approved a new technical collaboration and trademark licence agreement with its Anglo-Dutch parent for making higher royalty payments. The markets haven’t taken kindly to the announcement, fearing that the phased increase in royalty — from 1.4 per cent to 3.15 per cent of HUL’s turnover by 2017-18 — would eat into its margins and, ultimately, dividend payouts to shareholders. Unilever Plc, the argument goes, already owns 52.5 per cent in HUL and that itself gives it a lion’s share of the dividends payable.

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