An increased brand fee paid by India-listed Vedanta, apart from record dividend, has helped Vedanta Resources (VRL) — the London-based holding company of Vedanta Group — to repay part of its debt.
Vedanta paid a brand fee of Rs 2,632 crore ($325 million) for 2022-23 (FY23), according to Nomura report. This was after the Anil Agarwal-owned holding company raised the brand fee to 2 per cent of the turnover for its Indian businesses in 2021.
In 2021-22 (FY22), Vedanta and its subsidiaries paid a brand fee of Rs 1,553 crore, compared with Rs 939 crore of the brand fee paid in 2020-21 (FY21).
In 2017, Vedanta signed a three-year brand licence agreement with VRL for the use of the brand ‘Vedanta’ which stipulated a brand fee to VRL at 0.75 per cent of the turnover of Vedanta.
Later, certain subsidiaries of Vedanta executed similar agreements with VRL to pay brand fees ranging between 0.75 per cent and 1.5 per cent of their respective turnover.
In FY21, the agreement was renewed and certain additional services were also agreed to be provided by VRL. After the new agreement, the brand and strategic service fee was renegotiated at 2 per cent of the turnover, while for the remaining subsidiaries, the previous rates remained unchanged.
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In FY22, the agreement was extended for 15 years.
Vedanta pays such fees in advance, at the beginning of the year based on estimated annual turnover, the company had said in its annual report last year.
An email sent to Vedanta did not elicit any response until the time of going to press.
Vedanta is not the only company to raise brand and royalty fees from its Indian subsidiaries.
Effective February this year, Unilever Plc’s Indian subsidiary Hindustan Unilever raised royalty and central services fees to 3.45 per cent of turnover from 2.65 per cent — staggered over the next three years.
Tata Group holding company, Tata Sons, also charges 0.25 per cent of the annual net income or 5 per cent of the profit before tax (whichever is less) for the use of the ‘Tata’ brand name by its subsidiaries. The year a company makes losses, Tata Group companies are not required to pay the fee.
Analysts said the record dividend paid by the Indian subsidiaries and the rising brand fee has helped VRL repay its debt.
Since March 31 this year, VRL has reduced its gross debt by $1.4 billion to $6.4 billion, compared with $7.8 billion at the end of March this year.
VRL aims at reducing debt further in 2023-24 and ultimately have it at zero.
In FY23, VRL received Rs 25,636 crore of dividends from Vedanta, which was partly used to repay debt, said analysts.
VRL owns a 68.1 per cent stake in Vedanta, which, in turn, holds a 63 per cent stake in Hindustan Zinc.
VRL also took fresh loans from Glencore, Trafigura, and other lenders, including JPMorgan Chase and Oaktree, to refinance its old loans.
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