Royalty of Maruti Towards Suzuki will be Increased Further

As India is one of the developing country in the auto market, many international companies want to get interlinked with Indian companies in order to increase their market. Just as Maruti had a joint venture with the Japanese company for marketing more products.

Maruti suzuki is one of the largest car maker in India. Astonishingly, there was drop in the profit for the quarter which ended on June 30, 2010. During the previous five quarters this was the first drop.

The drop in the profit was because of the increase in the royalty payments for the parent Suzuki Motor Corporation. Some amount has to be paid as royalty by the local Indian companies to their overseas partners (parent) for transfer of technology.

Thus, because of the increase in the payment of the royalty fee and the new model launches, Maruti’s net profit became low. Regardless of the increment in sales by 27% i.e. 8,050.7 crore the profit has come down. The percentage of profit decrement was 20% and the amount is 465.4 crore.

The percentage of the net sales derived from the asset minus the value of the imported content will be the royalty payment made. After the removal of the cap by the government, the Suzuki is flexible in fixing the technical fee on the previous models and the new models.

Net sales as of June 2010 after a completion of three months is Rs. 8,050.6 crore and the recurring royalty was 5.1%. Rs.123. 6 crore more had been paid by Maruti to Suzuki as the royalty payments are modified. Therefore, the net roylalty burden for this quarter was Rs. 413 crore which is 81% higher when compared with the same quarter last year.

Due to this regulation, every international model which is launched in India or it has foreign collaborations for supplying directly or Indirectly will have an impact.



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