Maruti's royalty payouts to Suzuki up by 6 times in 15 years

Suzuki has been charging Maruti Suzuki a royalty - a fee charge charged for either the brand and or product technology. According to a report by Institutional Investor Advisory Services (IiAS), the amount charged has been increasing over the years and in 2014-15, aggregated 5.7% of the net sales and 30% of the profits before royalty for the year. 

In the past 15 years, the amount of royalty has increased 6.6 times to Rs. 21,415 per car sold. The average sales realisation per car has increased only 1.6 times.

Since 2012, the profit after tax (PAT) has and earnings before interest, taxes, depreciation, and amortization (EBIDTA) margins have more than doubled. In 2011-12, the PAT was 4.7% of net sales. In the first quarter of 2015-16 it has increased to 9.1%. In the same period, EBIDTA has increased from 7.6% to 16.7%. Stock prices have gone up from Rs. 1,348 in 2011-12 to Rs. 4,022 in April-June 2015-16.

However, the royalty ratio has not changed significantly. In 2011-12, it was 5.4% and in the first quarter of 2015-16, it has risen to 5.6%.

The IiAS report also mentions that Suzuki's R&D efforts do not appear to aid Maruti's margins or expansion. Suzuki's R&D spending per vehicle (including motorcycles) averaged 4% of sales.

Source: Economic Times