Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Shareholder activism is on the rise in India. Institutional shareholders are making their vote count. Proxy advisor firms are also playing a role in guiding institutions to leverage their voting rights prudently. Over the past few months, we saw several instances of activism, mostly through adverse voting and complaining on public forums like earnings call. In a couple of cases, large shareholders (&gt;10% ownership) have also used their rights under Companies Act to call an extraordinary general meeting (EGM) to push for change of board and management.
In our detailed insight below, we discuss many such instances that transpired over the past few months. We also discuss our key takeaways for the Indian markets from this uprising activism.

Shareholder activism is on the rise in India. Institutional shareholders are making their vote count. Proxy advisor firms are also playing a role in guiding institutions to leverage their voting rights prudently. Over the past few months, we saw several instances of activism, mostly through adverse voting and complaining on public forums like earnings call. In a couple of cases, large shareholders (&gt;10% ownership) have also used their rights under Companies Act to call an extraordinary general meeting (EGM) to push for change of board and management.
In our detailed insight below, we discuss many such instances that transpired over the past few months. We also discuss our key takeaways for the Indian markets from this uprising activism.

The Rise of Shareholder Activism in India

Consumer Analyst / Channel Surveillance Specialist, Trudence Capital Advisors

Pranav Bhavsar

Consumer Analyst / Channel Surveillance Specialist

Trudence Capital Advisors

Trudence Capital Advisors Private Limited is a SEBI-registered Research Analyst, holding SEBI registration number INH000015747. Our firm is dedicated to providing independent and unbiased research on Indian mid to large-cap companies. Trudence Capital is known for its counter-consensus views, with a focus on forensic research and on-ground primary investigations. Our research approach is thorough, involving detailed analysis of accounting practices and governance, alongside extensive channel checks.

Independent & Unbiased Research

Thematic (Sector/Industry)

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The objective of "The Narrative" is to aid us in assessing management commentary, which we can further connect with ground reality via primary checks, aiding us in identifying key catalysts that could be potential drivers of stock returns.
For the narrative, we will be covering commentary on Demand Environment &amp; Business performance; Margins &amp; Inventory; Supply Chain, price increases and discounting; Competition and market share; New launches; Electric vehicles (EVs); Outlook and Strategy
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Companies covered included <a href="https://www.smartkarma.com/entities/mahindra-mahindra-ltd" target="_blank" data-smartkarma-citation="entities:16441:1" rel="noopener">Mahindra &amp; Mahindra (MM IN)</a> / <a href="https://www.smartkarma.com/entities/tata-motors-ltd" target="_blank" data-smartkarma-citation="entities:216:1" rel="noopener">Tata Motors Ltd (TTMT IN)</a> (Primarily Standalone India Business) / <a href="https://www.smartkarma.com/entities/ashok-leyland-ltd" target="_blank" data-smartkarma-citation="entities:20104:1" rel="noopener">Ashok Leyland (AL IN)</a> /  <a href="https://www.smartkarma.com/entities/maruti-suzuki-india-ltd" target="_blank" data-smartkarma-citation="entities:733:1" rel="noopener">Maruti Suzuki India (MSIL IN)</a>


The objective of "The Narrative" is to aid us in assessing management commentary, which we can further connect with ground reality via primary checks, aiding us in identifying key catalysts that could be potential drivers of stock returns.
For the narrative, we will be covering commentary on Demand Environment &amp; Business performance; Margins &amp; Inventory; Supply Chain, price increases and discounting; Competition and market share; New launches; Electric vehicles (EVs); Outlook and Strategy

Companies covered included Mahindra &amp; Mahindra (MM IN) / Tata Motors Ltd (TTMT IN) (Primarily Standalone India Business) / Ashok Leyland (AL IN) /  Maruti Suzuki India (MSIL IN)

The Narrative | Q1 FY22 | India 4Ws - MM, TTMT, AL, MSIL

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Institutional investors were recently in the news for opposing a 10% pay hike for a CEO-promoter in FY2021, a year of bad results for his firm. One big story went unremarked: that the latest pay hike was on a high base, since the CEO had received a 51% pay hike in the previous year of poor performance (FY2020). Interestingly, two of the three ‘independent directors’ who staff the crucial Nominations and Remuneration Committee (NRC) are former employees of the firm.<a href="https://www.setindiabiz.com/learning/special-resolution/" target="_blank" rel="noopener">Special Resolutions</a>, proxy advisory firms and institutional shareholders are proving to be the bane of corporate India and of Chief Executive Officers (CEO) with generous remuneration packages seeking reappointment.  The case of Siddhartha Lal, the CEO-promoter of <a href="https://www.smartkarma.com/entities/eicher-motors-ltd" target="_blank" data-smartkarma-citation="entities:18316:1" rel="noopener">Eicher Motors (EIM IN)</a>, received wide publicity when institutional shareholders at the August 7, 2021 annual general meeting delivered a humiliating rebuke by rejecting his candidature. They expressed discomfort with the 10% remuneration hike Lal received in FY2021 on the back of poor financial performance by the company, and with the clause which stated that Lal’s future remuneration would be capped at 3% of the company’s profits.  On August 23, 2021, a chastened Eicher Motors decided to once again <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/7d5bfd73-7dbf-4bdf-b6b0-0e7a90dca29e.pdf" target="_blank" rel="noopener">reappoint</a> Lal as managing director, but with a reduced remuneration cap of 1.5% of the company’s profits. They also issued a clarification justifying his remuneration hike in FY2021.The revised notice, citing Manvi Sinha, Chairperson of the NRC, gives rise to questions. It underlines the fact that NRCs appear ever willing to rubber stamp and defend the liberal remuneration packages provided to CEOs. The remuneration for promoter-CEOs like Lal ought to be dependent on the performance of the company, unlike remuneration for the general cadre of employees; thus the average 10% hike the firm claims it gave its employees (after adjusting for new hires/retirees) cannot be a justification for providing a 10% hike to Lal. Furthermore, Lal as a promoter with a substantial equity interest in the company, is also rewarded through dividends, and hence his remuneration is only one component of the monetary benefits he derives for his efforts.The <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/7d5bfd73-7dbf-4bdf-b6b0-0e7a90dca29e.pdf" target="_blank" rel="noopener">clarifications</a> by S. Sandilya (chairman, Eicher Motors) and by Manvi Sinha, both members of the NRC, fail to explain why, in FY2020, when the sales, profits and profitability of the company declined, Lal was given a 51% (57% as per a different disclosure) hike in remuneration, in contrast to the 5% decrease in median salary of all employees. Therefore the 10% hike in Lal’s remuneration in FY2021 was on a base of a 51% hike in FY2020. For two successive years of declining performance by the company, an indulgent NRC was willing to handsomely reward Lal, completely delinking the CEO’s remuneration from the company’s performance. When institutional shareholders witness such blatant indulgence, it is a scathing comment on the independence and competence of the NRC and the board of directors.The NRC of Eicher Motors consists of 3 independent directors. Manvi Sinha has a background in media and has reportedly known Lal from childhood; S. Sandilya was for many years a senior executive in Eicher Motors; and Inder Mohan Singh, partner of the law firm Shardul Amarchand Mangaldas, was earlier the Head – Legal and Secretarial at Eicher Motors. While independent directors may have known the promoters or worked with them earlier, their decisions on the board must defend the interests of the company and not just the promoter. Sadly, the manner in which the board has rewarded Lal for two consecutive years, when the company performed poorly, speaks volumes about its competence and independence.

Institutional investors were recently in the news for opposing a 10% pay hike for a CEO-promoter in FY2021, a year of bad results for his firm. One big story went unremarked: that the latest pay hike was on a high base, since the CEO had received a 51% pay hike in the previous year of poor performance (FY2020). Interestingly, two of the three ‘independent directors’ who staff the crucial Nominations and Remuneration Committee (NRC) are former employees of the firm.Special Resolutions, proxy advisory firms and institutional shareholders are proving to be the bane of corporate India and of Chief Executive Officers (CEO) with generous remuneration packages seeking reappointment.  The case of Siddhartha Lal, the CEO-promoter of Eicher Motors (EIM IN), received wide publicity when institutional shareholders at the August 7, 2021 annual general meeting delivered a humiliating rebuke by rejecting his candidature. They expressed discomfort with the 10% remuneration hike Lal received in FY2021 on the back of poor financial performance by the company, and with the clause which stated that Lal’s future remuneration would be capped at 3% of the company’s profits.  On August 23, 2021, a chastened Eicher Motors decided to once again reappoint Lal as managing director, but with a reduced remuneration cap of 1.5% of the company’s profits. They also issued a clarification justifying his remuneration hike in FY2021.The revised notice, citing Manvi Sinha, Chairperson of the NRC, gives rise to questions. It underlines the fact that NRCs appear ever willing to rubber stamp and defend the liberal remuneration packages provided to CEOs. The remuneration for promoter-CEOs like Lal ought to be dependent on the performance of the company, unlike remuneration for the general cadre of employees; thus the average 10% hike the firm claims it gave its employees (after adjusting for new hires/retirees) cannot be a justification for providing a 10% hike to Lal. Furthermore, Lal as a promoter with a substantial equity interest in the company, is also rewarded through dividends, and hence his remuneration is only one component of the monetary benefits he derives for his efforts.The clarifications by S. Sandilya (chairman, Eicher Motors) and by Manvi Sinha, both members of the NRC, fail to explain why, in FY2020, when the sales, profits and profitability of the company declined, Lal was given a 51% (57% as per a different disclosure) hike in remuneration, in contrast to the 5% decrease in median salary of all employees. Therefore the 10% hike in Lal’s remuneration in FY2021 was on a base of a 51% hike in FY2020. For two successive years of declining performance by the company, an indulgent NRC was willing to handsomely reward Lal, completely delinking the CEO’s remuneration from the company’s performance. When institutional shareholders witness such blatant indulgence, it is a scathing comment on the independence and competence of the NRC and the board of directors.The NRC of Eicher Motors consists of 3 independent directors. Manvi Sinha has a background in media and has reportedly known Lal from childhood; S. Sandilya was for many years a senior executive in Eicher Motors; and Inder Mohan Singh, partner of the law firm Shardul Amarchand Mangaldas, was earlier the Head – Legal and Secretarial at Eicher Motors. While independent directors may have known the promoters or worked with them earlier, their decisions on the board must defend the interests of the company and not just the promoter. Sadly, the manner in which the board has rewarded Lal for two consecutive years, when the company performed poorly, speaks volumes about its competence and independence.

Eicher Motor’s Cosy NRC Rewards CEO-Promoter Lavishly Year After Year as Performance Plunges

External broker reports(aggregated public sources), SMC Global

SMC Online

External broker reports(aggregated public sources)

Equity Bottom-Up

Eicher Motors posted a consolidated net profit of Rs 237 crore in Q1 FY22 compared with net loss of Rs 55.18 crore in Q1 FY21, above estimates For the quarter ended 30 June 2021, Eicher Motors' total revenue from operations was recorded at Rs 1,974 crore, up 141% compared with Rs 818 crore in the corresponding quarter of FY 2020-21. EBITDA was at Rs 363 crore compared with Rs 4 crore in the same quarter of the...
<div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

Eicher Motors posted a consolidated net profit of Rs 237 crore in Q1 FY22 compared with net loss of Rs 55.18 crore in Q1 FY21, above estimates For the quarter ended 30 June 2021, Eicher Motors' total revenue from operations was recorded at Rs 1,974 crore, up 141% compared with Rs 818 crore in the corresponding quarter of FY 2020-21. EBITDA was at Rs 363 crore compared with Rs 4 crore in the same quarter of the...
Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Eicher Motors: Net Profit of Rs 237 Crore in Q1 FY22

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The <a href="https://www.smartkarma.com/entities/s-p-bse-sensex-index" target="_blank" data-smartkarma-citation="entities:31494:1" rel="noopener">S&amp;P BSE SENSEX Index (SENSEX INDEX)</a> is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 17 December.The December review uses the market cap and turnover data from 1 May to 31 October to determine the stocks to be included and excluded from the index, and the announcement of the changes is done 4 weeks before the rebalance effective date.After missing out on index inclusion at the June rebalance, <a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> has a high probability of being included at the upcoming review. <a href="https://www.smartkarma.com/entities/bajaj-auto-ltd" target="_blank" data-smartkarma-citation="entities:3613:1" rel="noopener">Bajaj Auto Ltd (BJAUT IN)</a> is the most likely deletion from the index.<a href="https://www.smartkarma.com/entities/wipro-ltd" target="_blank" data-smartkarma-citation="entities:15360:1" rel="noopener">Wipro Ltd (WPRO IN)</a> will have over 2 days of ADV (and 7 days of delivery volume) to buy from passive funds while <a href="https://www.smartkarma.com/entities/bajaj-auto-ltd" target="_blank" data-smartkarma-citation="entities:3613:1" rel="noopener">Bajaj Auto Ltd (BJAUT IN)</a> will have nearly 3.5 days of ADV (10 days of delivery volume) to sell.

The S&amp;P BSE SENSEX Index (SENSEX INDEX) is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 17 December.The December review uses the market cap and turnover data from 1 May to 31 October to determine the stocks to be included and excluded from the index, and the announcement of the changes is done 4 weeks before the rebalance effective date.After missing out on index inclusion at the June rebalance, Wipro Ltd (WPRO IN) has a high probability of being included at the upcoming review. Bajaj Auto Ltd (BJAUT IN) is the most likely deletion from the index.Wipro Ltd (WPRO IN) will have over 2 days of ADV (and 7 days of delivery volume) to buy from passive funds while Bajaj Auto Ltd (BJAUT IN) will have nearly 3.5 days of ADV (10 days of delivery volume) to sell.

Sensex Dec 2021 Index Rebalance Preview: Wipro Could Be IN, Pushing Bajaj Auto OUT

India

Eicher Motors Ltd. manufactures light commercial vehicles which are sold domestically and are also exported to other countries. Eicher Motors also manufactures two-wheelers and automotive gears.

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Eicher Motors (EIM IN)

The Rise of Shareholder Activism in India

Shareholder activism is on the rise in India with several recent instances where investors have raised concerns through voting rights and EGMs as...

Ankit Agrawal, CFA

The Narrative | Q1 FY22 | India 4Ws - MM, TTMT, AL, MSIL

For the narrative, we will be covering commentary from Companies covered included Mahindra & Mahindra (MM IN) / Tata Motors Ltd (TTMT IN) / Ashok...

Pranav Bhavsar

Eicher Motor’s Cosy NRC Rewards CEO-Promoter Lavishly Year After Year as Performance Plunges

Eicher Motors must realise the seismic shift in influence that Special Resolutions, proxy firms and shareholders can bring about, disrupting the...

Hemindra Hazari

Eicher Motors: Net Profit of Rs 237 Crore in Q1 FY22

Eicher Motors posted a consolidated net profit of Rs 237 crore in Q1 FY22 compared with net loss of Rs 55.18 crore in Q1 FY21, above estimates For...

SMC Online

Sensex Dec 2021 Index Rebalance Preview: Wipro Could Be IN, Pushing Bajaj Auto OUT

Half way through the review period for the Sensex, we expect Wipro replaces Bajaj Auto at the December rebalance. Both stocks trade cheaper than...

Brian Freitas

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