Corporate watchers believe the special resolution to reappoint Neeraj Kanwar as managing director of Apollo Tyres could be put before shareholders again. The special resolution was defeated at the last meeting.
They said the MD’s remuneration might be reduced to placate shareholders.
Over 56% of the institutional investors and 49% of the retail shareholders voted against the resolution to extend Kanwar’s tenure beyond May 2019 over concerns about his high compensation. Kanwar, a part of the promoter family, had sought around Rs 68.4-crore compensation going forward.
During FY18, the total remuneration paid to Kanwar amounted to Rs 44.6 crore, a 45% increase over the previous year. This was when the company’s profits were down 34% year-on-year. The ratio of this remuneration to the median employee salary at Apollo Tyres was 940x.
Neeraj, along with his father and chairman of the company Onkar Kanwar, received Rs 94.2 crore in FY18 as salaries which were 13.1% of the net profits.
Their board of directors include chairman and MD Onkar Kanwar, Sunam Sarkar, Akshay Chudasama, Dr S Narayan, Francesco Gori, General (retd) Bikram Singh, Nimesh Kampani, Pallavi Shroff, Robert Steinmetz, Vikram Mehta, former CAG Vinod Rai, Anjali Bansal, Dr M Beena and Seema Thapar besides Neeraj Kanwar. An Apollo Tyres’ spokesperson said, in an e-mailed response to a query from FE, the board will discuss the resolution in the next meeting.
The special resolution was defeated since Section 114(2)(c) of the Companies Act, 2013, requires “the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a poll, as the case may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot are required to be not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting. The number of votes cast in favour were 0.32 billion while the number 0.12 billion; it was just 2.6 times”.
The Apollo Tyres’ scion remuneration has risen sharply since FY14 when he received Rs 14 crore. While a large portion of his salary is performance-linked, there is no absolute cap on the commission up to 5% of the net profit.
The rise in his compensation does not commensurate with the company’s performance prompting shareholders to vote against the resolution. Apollo Tyres’ revenues have remained flat in the last two fiscals at Rs 14,930 crore while its annual profits were down to Rs 720 crore in FY18 from Rs 1,123 crore two years ago.
Kanwar’s reappointment, for a term of five years, required the shareholder approval through a special resolution as his proposed remuneration exceed 2.5% of profits as laid down in the Sebi regulations. Under Regulation 17(6) of the Sebi listing agreement, “the fees or compensation payable to executive directors who are promoters or members of the promoter group, shall be subject to the approval of the shareholders by a special resolution in general meeting, if the annual remuneration payable to such executive exceeds Rs 5 crore or 2.5% of the net profits of the listed entity, whichever is higher…”
However, corporate watchers believe the Apollo Tyre scion will have to pacify minority shareholders in order to bid for another term as MD.
“Kanwar will have to address investors’ concerns on his pay package. A revised resolution with less compensation seems the way out from this situation,” an analyst explained. Experts also believe that the latest development has reignited the debate about the long-term value by the promoter group and the cost borne by the company for it.
Amit Tandon, MD of proxy advisory firm Institutional Investor Advisory Services India, said it is a strong signal for promoter companies to not deviate salaries from company’s financial graph.
“This is the first instance when institutional investors are questioning the right of the promoter to run their own company. They have been unhappy with the compensation and could be the principle reason for their voting against the reappointment. Moreover, the performance of the company has also not been impressive, which was also concerning the investors,” Tandon said.
Apollo Tyres is the second largest tyre manufacturer in India having a dominant presence in the replacement market, which contributes nearly 75% to its revenues. It boasts of six manufacturing facilities in India and Europe.