India-First-Global-Insights-Analysis -Sharing-PlatformIndia-First-Global-Insights-Analysis -Sharing-Platform

Who owns the brand JSW?

, August 8, 2014, 0 Comments

who owns the brand JSW Steel-MarketExpress-inLast week JSW Steel, Flagship Company of Mr.Sajjan Jindal led JSW group announced its quarterly results. On a consolidated basis, sales and profit both registered positive growth over the last quarter of same year. Topline stood at Rs. 13,067 crore for the quarter (Rs. 10,141 Cr same Quarter last year) and Profit of Rs.656 crore (Loss of Rs. 382 Crore in same quarter last year).

Day’s prior to the announcement of the results, analyst and proxy firms raised a particular item in its resolution that is being put to vote. JSW Steel proposed to pay a brand license fee of 0.25 per cent of the consolidated Net Turnover of the company to JSWIPL, effective from April 1, 2014, payable quarterly.

It is important to note that “Sangita Jindal, wife of Mr.Sajjan Jindal (promoter and chairman and managing director of the company), holds directly and through her nominees 2,049,880 shares, representing 99.99 per cent of the total equity share capital of JSWIPL.

Company defends its decision (Clarification submitted to stock exchanges) by stating

“JSW Investments Pvt Limited (JSWIPL), is the owner of the brand ‘JSW’. To sustain and improve the brand value and to bestow the tangible and Intangible benefits In the longer term, a sustainable corporate branding campaign Involving substantial expenditure has to be done on consistent basis to disseminate the Idea, knowledge, information and core values of the brand through a systematic campaign. To meet this expenditure, a brand fee is proposed which is benchmarked with that of fees being paid by various conglomerates in India and abroad. Appropriate checks and balances are put in place so that the brand fee paid by various companies of the Group is used for the purpose intended duly certified by independent auditors.”

Though company dubbed its proposal as being benchmarked with various conglomerates, yet  it raises important issue. Who owns and benefits from brand “JSW”.  Company claims that it holds the brand fully is acceptable but the sole beneficiary being the promoter wife,  is not in good  spirit.

Technically there is nothing wrong in this but what about the other stakeholders such as investors, shareholders. Brand which has developed over period of two decades and through everybody’s contribution, then why investors who have shown faith and loyalty shouldn’t benefit?.

Proxy firm Stakeholders Empowerment Services (SES) is also arguing the same point. According to J N Gupta, managing director of SES

“We do not understand the logic behind the JSW brand being owned by a company that is nearly 100 per cent owned by Sangita Jindal, wife of Sajjan Jindal. SES is of the opinion that ownership of the brand, which develops over a period of time along with growth of the business, cannot belong to a separate company promoted by the promoters of the company.

If at all the brand is to be separated, it should be owned by a company jointly promoted by the group companies in proportion of their turnover or profit or assets or vintage or a combination of any or all the factors.”

J. N. Gupta appealed to the shareholders to vote against the resolution at the AGM. He further points out that “JSW Steel started as a public company about two decades ago and where public shareholders being part of it, right from beginning. “How can ownership of brand be transferred to the promoters’ family? Did promoters use their money to promote JSW.”

Conclusion
In past also various such incidents has made to the headlines of various business newspapers where resolution proposed by the company that were not in the best interest of shareholders. Havells case of paying royalties to its promoter is also facing shareholders ire. While Cairn India’s loan of $ 1.25 billion to its parent company is not received well by the market.

The time is ripe to develop a model where promoters pep talk of “Shareholders value creation” should translate into action and some tangible gain have to be passed on to its minority shareholders. Unless the contribution of the beneficiary  (In this case Sangita Jindal) is visible in public and could be evaluated independently no proposal should get shareholder consent.