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Finshots Daily
Why investors hate royalties that Indian subsidiaries pay foreign MNCs
May 22, 2024
Exploring the rising royalties Indian subsidiaries pay foreign MNCs and the impact on profits and investor relations. Discussion on government restrictions, stake reduction, and going public. Suggestions on reintroducing royalty payment caps and insights from Tata Group's internal agreement.
06:32
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Quick takeaways
- Foreign MNCs rely on Indian subsidiaries for local distribution and marketing, leveraging parent company resources.
- Rising royalties from Indian subsidiaries to foreign MNCs present challenges for investors and profitability.
Deep dives
Impact of Royalties on MNCs in India
The policy limiting foreign MNCs' shareholding in Indian companies to 40% led to mixed reactions. Some well-known MNCs like Coca-Cola and IBM exited India, while others like Nestle and Colgate chose to reduce their stake and conduct IPOs. These companies benefited from the parent company's research and technology, allowing Indian subsidiaries to leverage established processes and focus on local distribution and marketing. However, the issue of royalties has sparked investor concerns as higher payments could potentially reduce profits and impact dividends and stock prices.
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Discover
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