A statement to the BSE had said that the royalty payment would enable the group to help protect, nurture and enhance the Jubilant brand name and the group’s image globally.
But, proxy advisory firms were hardly impressed with the move, saying it was a corporate governance issue. “I don’t understand what is the contribution of the promoters in creating the Jubilant brand name. Second, when it comes to Jubilant FoodWorks, are people buying pizza in the name of Jubilant or Domino? What is the basis for this royalty then?,” asked J N Gupta, co-founder and managing director, Stakeholders Empowerment Services.
Shriram Subramaniam, managing director of InGovern, said it was a case of an “ownership premium” that the promoters were extracting from the two firms. “While I can still understand the importance of the Jubilant brand name to the pharma firm (Jubilant Life Sciences) and hence the royalty being charged by the promoters, I don’t see any such ground in the food services company,” he said.
Analysts said Jubilant’s decision to pay royalty to the promoters would be a clear case of the firm paying royalty twice.
To put things in perspective, Jubilant FoodWorks, which is the master franchisee of Domino’s and Dunkin’ Donuts in India, already pays franchise fees to Domino’s in the US for using the latter’s name here. In FY17 and FY18, franchise fees paid by the company was to an extent of 3.3 per cent of net sales. This was nearly Rs 86 crore and around Rs 100 crore, respectively, for the two years (see chart).
On FY18 sales, the additional outgo in terms of royalty to promoters would work out to Rs 7.5 crore, analysts said. In the past seven years, Jubilant FoodWorks’ royalty to Domino’s in the US has largely remained in the 3.3 per cent bracket, data sourced from Capitaline showed. Rival Westlife Development, which runs McDonald’s stores in the south and west of the country, on the other hand, has seen its royalty increase from 2.1 per cent (in FY12) to 4.2 per cent (FY18).
Last week, Westlife Development said its royalty for FY20 would remain at 4 per cent.