Royalty payments by Indian subsidiaries of multinationals to their overseas parents increased nearly 42% in the past five years, underscoring the growing cash generating potential of the local units, according to analysts. An ET study of 10 companies — including Hindustan Unilever (HUL), Nestlé, Maruti Suzuki, Bosch, Colgate-Palmolive, Bata, Whirlpool and 3M India — showed that their cumulative payout to their parents crossed the Rs 8,000 crore mark in 2023-24, up from about Rs 5,600 crore in 2018-19. 113972434“The significant growth in royalty payments by MNCs to their parent companies over the past five years highlights the increasing importance of Indian operations as cash generators for global parents,” said Mohit Yadav, founder of business intelligence firm AltInfo. 113938840Royalty refers to payments made to an owner of an asset, such as intellectual property, by another entity for the use of that asset. HUL in 2023 increased the royalty and central services fees payment to Unilever group to 3.45% of turnover, from 2.65%, staggered over three years.However, Nestle’s proposal this year to increase royalty from India to its Swiss parent faced resistance from local shareholders, with the majority rejecting the proposal. The maker of Maggi instant noodles and Nescafé coffee had proposed to increase the royalty payout to 5.25% of net sales, from 4.5%, over five years. “While some companies like Nestlé faced resistance in raising royalty percentages, HUL successfully increased its royalty payments, reflecting both the profitability of its Indian business and the parent company’s ability to extract higher returns,” said Yadav of AltInfo. 113959778“This trend underscores the delicate balance multinationals must strike between maximising returns for global shareholders and maintaining the interests of local stakeholders in the Indian market.” Overseas firms have licence agreements with their Indian units, under which royalty is calculated as a percentage of the gross or net revenue, in return for use of all or certain brand names, trademarks, research and development and technology. A surge in revenue of the local unit therefore pushes up the payout even when the royalty rates remain the same. HUL said in its latest annual report that the royalty agreements allow the business to “bring in bigger, better and faster innovations to Indian consumers from the global R&D teams.”