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Royalty Flows In Suzuki’s Blood

Published on Tue, Oct 20,2015 | 17:29, Updated at Tue, Oct 20 at 17:30Source : 

IIAS says - Suzuki needs to explain the basis of charging Maruti very high rates of royalty. Maruti cars are for the most Suzuki’s products that emanate from the research and development undertaken in Japan. Yet, Maruti has been a stronger brand in India than Suzuki. To the extent that Maruti uses Suzuki’s technology, it must pay royalty. But how much is enough? Royalty payments aggregated 5.7% of net sales and 36% of profits before royalty in 2014-15.

IiAS examines Maruti’s royalty payouts in the context of revenues, margins, and research and development (R&D) spends, and concludes that Maruti’s royalty payouts are extortive. Over the past 15 years, royalty paid to Suzuki, has grown 6.6x to Rs.21,415 per car sold, while average sales realization per car has increased only 1.6x. While Suzuki’s consolidated R&D spend per vehicle (including motorcycles) averaged 4% of sales, its royalty payments from Maruti are 6% of net sales.

Maruti shareholders must ask the fundamental question: what is the right amount of royalty that must be charged? Royalty is not Suzuki’s indelible right – it must explain its coercive charges on Maruti’s cash flows.

To know more, please see the enclosed IIAS report.

Attachments : IE_RoyaltyInSuzukiBlood_19Oct2015.pdf

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