SEBI STUDY HIGHLIGHTS CONCERNS ON ROYALTY PAYMENTS
The Securities and Exchange Board of India (SEBI) has conducted a comprehensive study analyzing royalty payments made by listed companies to their Related Parties (RPs).
The study covers annual, company-level data from 233 listed companies across various sectors in India. These companies have made royalty payments to RPs amounting to less than 5% of their turnover over a 10-year period, spanning FY 2013-14 to FY 2022-23.
The findings highlight significant issues with current industry practices concerning royalty payments. Notably, these payments often show little correlation with the companies’ revenues or profitability. Furthermore, companies making such payments do not consistently outperform their peers. In some cases, shareholder approval is sought for royalty payments in perpetuity, which raises concerns regarding corporate governance principles.
In response, the study advocates for a review of the existing regulatory framework governing royalty payments. Key issues identified for broader policy discussion include reassessing the current materiality threshold of 5% of turnover, establishing stronger links between royalty payments and profitability, and introducing stricter governance norms.
Overall, the study offers valuable insights into prevailing industry practices, exposing gaps and shortcomings. It provides a strong foundation for reevaluating the regulatory framework and initiating constructive policy discussions.
Link to SEBI report: https://www.linkedin.com/feed/update/urn:li:activity:7263074111248097281
