Bangalore/New Delhi: What’s in a name?
If it is Omaxe Ltd, the Delhi-based real estate company that plans to sell shares to the public, then it is a hefty fee—totalling Rs13.2 crore last year alone—for use of the brand.
That’s because Omaxe doesn’t own the brand and pays a royalty for its use to Rohtas Goel, who also happens to be the promoter, chairman and managing director of the company. It is Goel who owns the Omaxe brand.
This arrangement came to light when Omaxe filed its draft red herring prospectus with stock market regulator Securities and Exchange Board of India, or Sebi, ahead of the proposed sale of the company’s shares to the public.
According to the filing, Omaxe paid Goel a royalty of Rs13.2 crore for the year ended March 2006 for use of the brand. The payment stems from an agreement signed between Omaxe and Goel in October 2005. According to the agreement, which is valid till the end of next March, Omaxe has to pay Rs1.2 crore plus 2% of its real estate turnover to Goel every year in return for using the brand.
As chairman and managing director of Omaxe, Goel is paid Rs36 lakh as a salary, excluding certain perquisites, and is also entitled to an additional 2% commission of the net profit of the company.
For the six months ended 30 September 2006, Omaxe posted sales of Rs591.7 crore and a net profit of Rs103 crore, according to information available on the company’s website. More recent financials are not available.
Omaxe plans to sell 17.79 million equity shares through a proposed public issue to raise money to acquire land, repay loans and fund projects and working capital. The timing and the price band for the issue are not known. The shareholding of Goel as well as other promoters and associates will come down by around 10% to 89.7% after the sale of shares.
Omaxe declined to comment about the arrangement, citing Sebi guidelines that prohibit companies selling shares to the public from speaking to individual news media.
Most companies tend to be very particular about fully owning their brands, which usually reside with the company itself and not with individual promoters.
“This is not a healthy practice,” said Nitin Gupta, an analyst with audit firm PricewaterhouseCoopers. “Typically, the company should own the brand name which it is using. I think the promoters retained the trademark as they wanted to earn money on a long-term basis.”
Nitin Khandkar, senior vice-president, research, at Keynote Capitals Ltd, an investment bank, also said the brand name should ideally belong to the company. “The company has not been open to public scrutiny till now. So it did not matter if the promoters owned the brand name,” he said. Now that it was selling shares and going public, “investors will look at whether the promoters transfer the brand name to the company,” he added.
The amount paid by Omaxe to Goel for 2006-07 isn’t known because the company is yet to update its draft prospectus after an initial filing. The prospectus says that Goel has renounced the balance entitlement of royalty until March 2008, but that he would be paid Rs10 lakh for eachfinancial year.
According to the prospectus, Goel has also offered to renew his agreement with the company for another 10 years at an annual consideration of Rs10 lakh. The agreement has not yet been signed and it is subject to approval from government of India, the prospectus said.