The Raymond stock fell as much as 9.8% on Thursday with investors upset over the promoters’ intentions to acquire premium property at a price which experts believe is 90% below market value and consequently an “opportunity loss” to the company and minority shareholders.
The loss is estimated at Rs650 crore, or Rs100 per share of Raymond, by proxy advisory firm Institutional Investor Advisory Services (IiAS) which red-flagged the resolution. The earnings per share (EPS) reported by the company for 2016-17 was Rs4.16.
“In our opinion, the board has failed to protect the interests of the minority shareholders. The company and its directors must prepare themselves for shareholders seeking recompense,” IiAS wrote. Public shareholders, including Life Insurance Corporation of India (LIC), which has a 5.2% stake, hold 56.95% of Raymond’s equity capital while the promoters have a 43.05% stake.
Among the independent members on the Raymond board are Nabankur Gupta, Ishwar Das Agarwal, Pradeep Guha, Akshay Chudasama and Boman Irani. Raymond reported a profit of Rs25.5 crore on consolidated revenues of Rs5391.3 crore in 2016-17; the cumulative profits in the last five years were Rs366.6 crore and the company’s total debt as of March, 2017 was Rs1,767.4 crore.
Following a clarification by the firm the promoters would abstain from voting, the stock rebounded to close at Rs682.90 on the NSE. The resolution is to be put to vote at the company’s forthcoming annual AGM on June 5.
In September, 2015, Securities and Exchanges Board of India (SEBI), in line with amendments to the Companies Act, stipulated that a resolution involving a related party transaction required only a 50% vote with related parties abstaining from voting.
In its original form, section 188 of the Companies Act required any related party transaction to be passed via a special resolution with a 2/3rd vote from the shareholders, with the related parties abstaining. The rule was amended to say that related party transactions could be passed via an ordinary resolution instead of a special resolution with a 50% vote and the related parties abstaining.
The property transaction pertains to a tripartite agreement between Raymond, one of its fully owned subsidiaries Pashmina Holdings and Vijaypat Singhania, Raymond’s chairman emeritus; Gautam Singhania, its CMD and two of their relatives. According to resolution No.10 of the AGM notice, shareholders are required to vote on “making of an offer by the company to each of the four sublessees namely: (a) Dr. Vijaypat Singhania, (b) Mr. Gautam Hari Singhania, (c) Mr. Akshaypat Singhania and (d) Ms. Veenadevi Singhania along with Mr. Anant Singhania for the purchase of premises in the new building known as JK House.
According to the AGM notice, Raymond had purchased JK House in 1945 and since then it has been used as the residence of its promoters and directors. Later, in 1994, four duplexes in the building were leased out to Pashimina Holdings at Rs 6,000 per month. Pashimina Holdings, in turn had sub-leased the four duplexes to the Singhanias at Rs 7,500 per month. With the passage of time, the buildings structure became weak and the company even got a communication from municipal authorities to demolish it because of it being unsafe. That’s when the tripartite agreement was signed to sell the four duplexes to the Singhanias at Rs 9,000 per square feet. The notice also adds that the company has spent over Rs 270 crore in renovating the JK House.
IiAS, citing Raymond’s own valuation reports, said that while the entire property valued at Rs 1,17,000 per square feet, adding up to Rs 710 crore, Raymond intends to sell it to the promoters at roughly Rs 9,200 per square feet of carpet area – or a 90% discount – leading to the company making a loss of Rs 650 crore.
IiAS pointed out the company is trying to sell a property to the promoters at Rs 9,200 per square feet on which it has spent Rs 11,000 per square feet just on the construction.
“We adhere to highest level of corporate governance. All relevant facts were put forth in the AGM notice to the shareholders much before any report was published, to take an informed decision. Needless to state that the promoters, being interested parties, will abstain from voting on this matter” a Raymond spokesperson said.