Tata Sons Doubles Royalty Fee From Companies Like TCS, Tata Motors and Tata Steel

Ratan Tata pioneered the concept of a brand subscription scheme in 1996. According to this arrangement, it required Tata-affiliated companies to pay 0.25% of yearly revenue or 5% of pre-tax profit for direct use of the Tata brand, and 0.15% for indirect use.

Increase in Royalty Fee

Tata Sons, the main holding company of the Tata Group, has declared a substantial rise in the royalty fee for its subsidiary companies. The fee these companies pay for the privilege of using the Tata brand name has been increased to Rs.200 Cr from Rs.100  Cr set five years ago. This adjustment impacts various companies operating within the group, including TCS, Tata Steel, and Tata Motors.

Evolution of Brand Subscription Fee Structure

Under Cyrus Mistry’s leadership in 2015, Tata Sons imposed a maximum cap of Rs.75 Cr on the brand subscription fee. N Chandrasekaran subsequently increased this limit to Rs.100 Cr in 2019. Now, with the fee doubled to Rs.200 Cr, Tata Sons has removed the choice for group companies to pay based on pre-tax profit. As a result, operating entities will now need to pay 0.25% of their annual revenue, with the fee capped at Rs.200 Cr.

Notification of Royalty Payment by TCS

TCS, a major Tata Group entity, informed shareholders of a Rs.200 Cr royalty payment to Tata Sons in FY24. This increase aligns with Tata Sons’ intensified brand-building efforts, demonstrated by ventures like IPL title sponsorship.

Significance of Brand Subscription Fees

Brand subscription fees represent a significant source of revenue for Tata Sons. In FY23, it generated Rs.1,008 Cr from brand subscription income.This revenue stream has surged due to Tata Group’s companies expanding through acquisitions, resulting in multi-billion-dollar businesses. Tata Sons’ brand subscription income in FY23 increased by 23% compared to FY22, rising from Rs.820 Cr to Rs.1,008 Cr. The funds collected are utilized by the holding company to promote and safeguard the Tata brand, which is valued at $29 billion (approximately Rs.2.4 lakh Cr).

Conclusion: The evolution of Tata Group’s brand subscription scheme, from its inception to recent adjustments under Tata Sons’ leadership, including doubling royalty fees to Rs.200 crore underscores the significance of the brand building. With the substantial increase in subscription income, Tata Sons continues to prioritize brand promotion and protection, vital for sustaining its esteemed Tata brand.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.