The 'Tata' Brand Name Costs TCS Twice As Much Now
Here is a look what the agreement for using the Tata brand entails.
Tata Consultancy Services Ltd. paid Rs 200 crore as brand equity to its promoter Tata Sons Pvt., as per its annual report for fiscal 2024. That is a 100% spike over the previous fiscal.
India's largest software services company has been paying Rs 100 crore as royalty to Tata Sons for the past five years. Let's look at how this trend has played out and what the agreement for the usage of the Tata brand entails.
Decoding The History
Tata Sons, the sole proprietor of the Tata brand, has a Brand Equity and Business Promotion agreement, in which the companies using it will have to pay a subscription fee, akin to a royalty. This amount depends on the extent of the usage of the brand in the corporate name or marketing materials, among other documents.
The red herring prospectus of Tata Technologies Ltd.'s initial public offering in November last year gave clues. The company said it pays a royalty of 0.25% of its annual net income or 5% of annual profit before tax, whichever is lower for this purpose.
Analysis Of TCS's Payment
But TCS' royalty for the usage of the brand had been capped at Rs 100 crore from fiscal 2020 to fiscal 2023.
In financial year 2020, 0.25% of the revenue for the company stood at Rs Rs 328 crore, while 5% of pre-tax profit was Rs 2,100 crore. However, royalty paid stood at Rs 100 crore for that year. This became a trend till FY23.
Financial year 2024 saw a break in trend with the company paying double for using the brand. While 0.25% of revenue stood at Rs 506 crore, 5% of pre-tax profit came up to Rs 2,880 crore. TCS paid a royalty of Rs 200 crore for the year, according to people with knowledge of the matter, who spoke on the condition of anonymity.
The likely updated terms in the Tata Sons royalty agreement are as follows:
0.25% of annual revenue or,
5% of profit before tax or,
Rs 200 crore.
Higher Royalty Income
A change in the BEBP agreement implies that there could be an increase in royalty income from other companies using "Tata" as well, such as Tata Technologies Ltd., Tata Steel Ltd. and Tata Motors Ltd.
It remains to be seen what the changes in terms could be as annual reports of these companies are still awaited.
