MUMBAI: Hindustan Unilever ( HUL ), the Rs 22,000-crore FMCG major, on Tuesday turned the street’s fears of a hike in royalty payments into reality.

The maker of Dove soaps and Knorr soups, which posted a 16% growth in net profit at Rs 871 crore for the third quarter ended December 31, 2012, announced a new trademark and royalty agreement with parent Unilever, which will more than double the outgo from the current 1.4% to 3.15% of the turnover in a phased manner.

The news of a revision in the royalty payment agreement disappointed the street and led to about a 3% (Rs 14) decline in HUL’s stock price on the Bombay Stock Exchange to Rs 482 on Tuesday. In mid-December, HUL’s stock had fallen following Unilever’s announcement to sign a trademark license agreement in Indonesia.

The revised agreement, which was approved by HUL’s board on Tuesday, would come into effect on February 1, 2013. It will increase the royalty cost by an estimated 0.5% of turnover from February 2013 and March 31, 2014, and in the range of 0.3-0 .7% of turnover in each financial year thereafter.

This will lead up to a total estimated royalty cost increase of 1.75% of turnover compared to existing arrangement till the year ended March 31, 2018.

The total outgo in the first year (2013-14 ) is estimated to increase by around Rs 125 crore on a pre-tax basis to over Rs 400 crore, said industry analysts.

The news, which comes in the wake of Holcim announcing royalty payments to be gained out of ACC and Ambuja Cement, has triggered a negative sentiment among analysts even though HUL reported a double-digit growth in its domestic business sales.

“What disappointed market the most was the increase in royalty arrangement. Our preliminary analysis suggests 3% and 5% contraction in EBITDA post this new royalty, ceteris paribus,” said Rikesh Parikh, VP-markets strategy and equities, Motilal Oswal Securities.