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Tata Sons, the holding company for the $104-billion Tata group, has put a cap on the brand subscription fee (royalty) to group companies at a time when shareholders have raised their voice against promoters such as JSW Group and Wadia Group for levying a royalty on their group companies for the use of their brands.
Started in 1996 under the Tata Brand Equity and Business Promotion (TBEBP) scheme, the group companies using the Tata brand have to pay 0.25 per cent of annual revenue or five per cent of the profit before tax (whichever is less). The year a company makes losses, it is not required to pay the fee.
This led to companies such as Tata Consultancy Services (TCS) paying Rs 118 crore in brand equity contribution in 2014-15, taking the total collection by Tata Sons to Rs 453 crore. Now, with this cap, TCS would not need to pay more than Rs 75 crore. “It shows Tata Sons is paying heed to investors concerns,” says an executive at a Tata group company that pays royalty. The move is also a relief to companies such as Tata Motors and Tata Steel, the largest revenue earners.
“The Tatas have a very strong brand and the companies using it benefit from it, which is not really the case with other groups that have recently started charging royalty,” says Amit Tandon, founder and managing director at proxy advisory firm Institutional Advisory Services.
The Wadia Group companies, including Britannia and GoAir, started paying royalty since 2011-12, even though they do not really use the Wadia brand. Investors also created an uproar last year when JSW Steel had to pay Rs 125 crore to the group holding company, JSW Investment, controlled by promoter Sajjan Jindal’s wife Sangita. Godrej is another group contemplating royalty on all its group companies. Currently, only Godrej Properties pays royalty.
The TBEBP scheme had also received uproar from shareholders of group companies when it was introduced by former chairman Ratan Tata.
He had assured the money will be used for strengthening the Tata brand and not for other purposes. By the UK-based consultancy Brand Finance, the Tata brand is Rs 1.3 lakh crore, up from Rs 3,700 crore in 1997.
“Given that the Tata companies are already paying royalty, cap on it is good as it will ensure that companies do not pay excessively when they grow really big,” says Tandon.
Correction
In response to the report, Tata Sons has clarified that contrary to the impression that may be created by the report that the cap on how much a Tata company needs to pay annually as subscription to the Brand Equity and Business Promotion Fund is a recently introduced decision, there has always been such a cap and it is revised from time to time. The revision is done, taking into consideration the financial ability of Tata companies to subscribe to the Fund and Tata Sons’ need to invest in strengthening and promoting the Tata brand. The cap of Rs 75 crore has been in place since 2012-13, before which it was Rs 50 crore.
Tata Sons also said shareholders of Tata companies have appreciated the creation of the BE-BP Fund, under the leadership of Mr Ratan N. Tata when he was Chairman of Tata Sons, and the investments that have been made over the years in strengthening the Tata brand, thereby adding value to Tata companies. As the report points out, the value of the brand has dramatically appreciated in the years since the creation of the Fund.
