Tata Sons caps group companies' brand fee at Rs 75 crore

MUMBAI: Tata Sons, owner of the Tata brand and promoter of Tata companies, has capped the royalty payment from group entities using the Tata name at Rs 75 crore. The cap on maximum royalty amount is aimed at reducing the burden on its large and profitable units and also freeing up cash for their growth. The move by Cyrus Mistry-led holding company for India's largest conglomerate, with a brand value of $21 billion, is in contrast with decisions by several MNCs to saddle their Indian arms with higher royalty payments.

Laid out in 1996, under an agreement titled Tata Brand Equity and Business Promotion (TBEBP), companies using the 'Tata' name have to directly shell out 0.25% of the annual revenue or 5% of the profit before tax, whichever is less. Those companies which use the name indirectly pay 0.15% of the turnover. If companies incur losses, they do not pay any royalty. TBEBP has been modified to accommodate certain group companies that have, over the years, grown exponentially and were paying huge fees under the earlier system.

For instance, software giant Tata Consultancy Services, paid Rs 75 crore in fiscal 2015 under the new system. If the old arrangement was in place, it would have had to cough up Rs 236 crore towards brand subscription fee. Tata Motors, which made a loss of Rs 4,739 crore, didn't pay anything in fiscal 2015.

The TBEBP scheme, when introduced by former chairman Ratan Tata, had led to an uproar by group companies' shareholders who feared that the contributions by Tata entities will serve as a source of revenue for Tata Sons. Ratan Tata, subsequently, reached out to investors to allay their fears, assuring them that the fund was only for promotion of the Tata brand. According to international consultancy firm Brand Finance, the Tata brand — ranked 34th in the list of top global brands — is currently worth Rs 1.3 lakh crore, up from Rs 3,700 crore in 1997.

"The largest amount that a company pays us now is Rs 75 crore. We have put a cap on this voluntarily," said a Tata Sons official. Another Tata executive said that without a cap, only the big companies ended up contributing a significant amount towards the TBEBP scheme, while the smaller ones, which also leverage the Tata brand, pay less. The new system will bring in some parity among group companies in this regard, he said.

The TBEBP's kitty has swollen manifold over the years since its inception as fortunes of Tata companies changed drastically with multi-billion dollar businesses built through acquisitions and expansions. However, some of its international units like Jaguar Land Rover, which contributes two-thirds to Tata Motors consolidated revenue, and NatSteel, Tata Steel's first overseas purchase, are yet to be brought under the TBEBP scheme.

Eventually, all the key group companies will be covered under the TBEBP as Tata Sons wants more investors, consumers and stakeholders across the world to be aware of the history and heritage of the 146-year-old brand, more so with the $103 billion group generating 70% of its revenue from countries outside India. This move is part of Mistry's plan to make the salt-to-software conglomerate one of the top 25 most-admired corporate brands globally.