MNCs take home huge dividends from India ops
Oct 27 2013 , Mumbai
Payouts grow up to 20 times in 10 years, enrich investors too
For instance, Unilever, which owns HUL in India took home Rs 2,099.19 crore in dividends last year. This was 3.69 times more than Rs 567.47 crore it took home 10 years ago. Nestle India’s promoters took home Rs 293.47 crore, 4.07 times more than Rs 72 crore they took home a decade ago, an analysis of data culled from corporate database Capitaline showed.
Glaxosmithkline Pharma paid 12.27 times more dividend to its global parent at Rs 214.59 crore in 2012-13, against Rs 17.48 crore 10 years ago. Maruti Suzuki’s paid 5.75 times more, Siemens 22.14 times and Bosch’s 23.69 times more, though on smaller initial bases. As a result of higher dividend payouts that also enrich their local and institutional shareholders, MNC stocks too have appreciated handsomely in the past 10 years, data suggests.
Pankaj Pandey, head of research at ICICI Securities said, “These companies have done well. They have the technology and have built the ecology in operating environment. So the parents and the shareholders are getting rewarded.” In fact, stocks of some of the Indian subsidiaries of have out performed the stocks of their global parents. This has been despite the rupee’s depreciation and considering that the stocks of the subsidiaries at higher P/E multiples than their parents at the start of the period under review.
“These stocks are in demand because the parent companies are stronger and stable. Also fewer free-floating stocks are available for these companies,” Pandey said. Under the prevailing market conditions, these companies attract a scarcity premium, and so, some of them are overpriced, he said.
Nestle India’s stock price soared 567 per cent in the past 10 years against a 241 per cent rise in the stock value of parent Nestle.
Hindustan Unilever’s share price rose 197 per cent compared with a 157 per cent gain in Unilever’s stock price. Colgate Palmolive India’s stock price rose 646 per cent against its parent’s 137 per cent gain. P&G India’s stock rose 405 per cent against 102 per cent gain for its parent.
Multinationals are also taking home higher royalty payments (calculated as a per cent of the sales turnover) after the government eased rules allowing them to charge higher royalties to promote foreign direct investment.
Last February, HUL decided to stagger a hike in its royalty fee from1.4 per cent of turnover to 3.15 per cent by March 2018. The announcement impacted HUL’s stock price negatively.
MNCs charge royalties on their Indian subsidiaries for various reasons. Capital goods companies charge for technical know-how and support through collaboration, while drug companies charge for marketing rights and consumer goods firms for brand equity.
Till April 2010, royalties were capped at 5 per cent of domestic sales in the case of technical collaboration and two per cent for the use of a brandname and trademark. However, the government scrapped these limits with retrospective effect from December 2009.