FMCG major Hindustan Unilever Ltd on Monday reported a 15.59 per cent jump in net profit at Rs 871.36 crore (Rs 8.71 billion) for the third quarter ended December 31, on account of robust sales across various business verticals.
The company's board has approved a proposal to increase the royalty payment to 3.15 per cent to its parent firm Unilever Plc.
The amount, equivalent to 3.15 per cent of total turnover, would be paid for various provisions related to trademark licenses and technology, among others.
The Mumbai-headquartered firm had posted a net profit of Rs 753.81 crore (Rs 7.53 billion) during the same period of the previous fiscal.
Net sales of the company rose to Rs 6,433.69 crore (Rs 64.33 billion) for the third quarter ended December 31, as against Rs 5,844.31 crore (Rs 58.44 billion) during the same period of 2011-12 fiscal, Hindustan Unilever Ltd said in a statement.
The company said its board, in a meeting held on Tuesday, approved a proposal to enter into a new pact with Unilever Plc, with effect from February 1 for various provisions of technology, trademark licences and other services.
"The new agreement envisages that the existing royalty cost of 1.4 per cent of turnover will increase, in a phased manner, to a royalty cost of 3.15 per cent of turnover no later than the financial year ending March 2018," HUL said.
The company said the increase in royalty cost, in the period from February 1, 2013 to March 2014 is estimated to be 0.5 per cent of turnover and thereafter in a range of 0.3 per cent to 0.7 per cent of turnover in each financial year, leading up to a total estimated increase of 1.75 per cent by March 2018.
"Given the need for increased levels of service and the consequential additional costs, Unilever asked for a review of the royalty arrangements in order to ensure a fair recovery of costs," the company said.
HUL currently has a technical collaboration agreement (TCA) with and a trade mark license agreement with Unilever.
The total impact of both these agreements comes out be the royalty cost of 1.4 per cent of turnover, the company said.
"The board is satisfied that appropriate due diligence has been done and that the new arrangements reflect fair payment for the services and benefits that HUL will continue to receives," it added.
HUL Chairman Harish Manwani said in an environment that continued to be challenging, the company has delivered another quarter of broad based growth and margin expansion.
However, Angel Broking FMCG Research Analyst V Srinivasan said: "HUL has delivered a disappointing set of numbers. . . with 5 per cent underlying volume growth for the domestic consumer business being the lowest in three years."
Shares of HUL on Tuesday closed at Rs 481.55 on the BSE, down 2.88 per cent from their previous close after falling 5 per cent intra-day.
In anticipation of earnings, the HUL counter had rallied to Rs 505.40 intra-day.