Hindustan Unilever slips 4% as royalty payout hike raises margin concerns
Published On: Friday, January 20, 2023 | By: Team KnowMyStock
Shares of Hindustan Unilever (HUL) dipped 4 percent to Rs 2,540 on the BSE in Friday’s intra-day trade after the company's board approved an increase in the payment of royalty and technical fees to its parent Unilever. It said the royalty fee it pays to parent Unilever Plc has been hiked by 80 basis points and will be effected in a staggered manner over a period of 3 years.HUL said the royalty fee — an amount paid by a third party to an owner of a product or patent for the use of that product or patent — to Unilever PLC will be hiked from 2.65 percent of sales to 3.45 percent (80 basis points) in a staggered manner over three years till 2025.HUL’s royalty fee will increase by 45 bps for February to December 2023, by further 25 bps for 2024, and another 10 bps for 2025. These royalty changes are included in management’s double-digit EPS growth targets for the medium to long term announced during the investor day in November 2022.
This is the first such hike undertaken by the parent firm after 10 years. The prior agreement with the parent for technology, trademark license, and central services was entered into in January 2013 for a period of 10 years.The new royalty and central services agreement will be signed as the current agreement of HUL with the Unilever group expire this year.
“Royalty would be front ended, which adds to margin pressure in near term. Royalty increase will impact EPS by 2-2.8 per cent for FY24 and FY25”, according to Amnish Aggarwal – Head of Research, Prabhudas Lilladher.
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