Unilever to get 1% of net sales of select products.
Hindustan Unilever (HUL) will pay parent, Unilever, royalty on use of some brands.
In a statement to the Bombay Stock Exchange today, the fast moving consumer goods (FMCG) company said it would pay 1 per cent of net sales for using these brands, the trademarks for which are held by Unilever. The agreement will take effect from January 1.
The board also approved amendments to the existing technical collaboration deal with Unilever to include product categories where technical inputs are provided by Unilever. The agreement would include products of specified categories manufactured by third-party manufacturers where technical inputs developed by Unilever were made available to them, the company said.
HUL first signed a technical collaboration agreement with Unilever sometime in the mid- to late-nineties, and has been paying royalty of 1 per cent under this arrangement since then. No trademark royalty was being paid by the company.
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Brands owned by Unilever and licensed to HUL include Lux, Lifebuoy, Ponds, Vaseline, Dove, Surf, Close-Up, Sunsilk, Brew, Axe and Clinic. By some estimates, HUL is likely to pay a royalty of about Rs 90 crore, based on a turnover estimate of Rs 18,000 crore for this financial year. So, if 50 per cent is the contribution to sales by these brands, then 1 per cent of that is Rs 90 crore, say analysts.
The stock price of HUL was marginally impacted following the statement by the company. The stock price came down by Rs 2.2 or 0.8 per cent to close at Rs 265.8.
The practice of paying royalty to the parent for using its trademark is not unusual in the FMCG sector. Companies such as Nestle, GSK and Colgate-Palmolive pay royalty between 3 and 5 per cent for using the trademark owned by their parents.
While the company did not specify the brands, sources said the amended agreement would include categories such as soups which are currently not included. Personal care is already in the existing agreement.