Jubilant FoodWorks’ Parent Backtracks On Royalty Issue Within Hours
The parent of Jubilant FoodWorks Ltd.—the operator of Domino’s Pizza chain in India—backtracked on charging a royalty from subsidiaries for using its brand name within hours as it sparked concerns about rewarding promoters at the expense of shareholders.
“Jubilant Enpro Pvt Ltd. decided not to charge the corporate brand royalty of 0.25 percent of consolidated revenues of the company and the same stands withdrawn,” according to the company’s exchange filing.
While the announcement came after the close of trade, Jubilant FoodWorks lost Rs 1,229 crore in market capitalisation. Its shares fell 6.67 percent, the most in more than a month, according to Bloomberg data.
CNBC-TV 18 first reported that the company is considering paying royalty to the promoter for using its brand name “Jubilant”.
Through the day, the announcement sparked corporate governance concerns and also led to a downgrade of Jubilant FoodWorks earnings per share for the next financial year.
It’s unfair to minority shareholders as the promoters are making gains by unequally distributing the money among themselves, Shriram Subramanian, founder and managing director at InGovern Research, told BloombergQuint over the phone. “The promoters are being penny-wise and pound-foolish,” he said. “The move shows that the promoters’ intent is not clean and is likely to trigger investors to sell these stocks.”
A 0.25 percent of revenue share of Jubilant FoodWorks would come up to Rs 11 crore and Rs 25 crore for Jubilant Life Sciences, BloombergQuint calculated based on Bloomberg estimated consolidated revenue for fiscal year 2019-20. The estimates for Jubilant Industries were not available.
“The brand Jubilant FoodWorks became known to people after it partnered with international brands such as Domino’s Pizza and Dunkin’ Donut,” JN Gupta, former executive director at the Securities and Exchange Board of India, told BloombergQuint over the phone. The company, which also belongs to its minority shareholders, paid for the advertising, and not the promoter group, he said. The boards, Gupta said, should seek shareholders’ approval before agreeing to pay royalty on a brand which is created by the company itself, as such a decision does not classify under “ordinary course of business”.
Broking firm Prabhudas Lilladher Pvt Ltd. downgraded Jubilant Foodworks’ earnings per share for the fiscal years 2019-20 and 2020-21 by 1.6 percent, calling the move “negative” due to lack of clarity whether the percentage of revenue share as royalty payment would increase. The broking firm had said a 0.25 percent charge was not meaningful unless promoters planned to increase it further over time.