SHAREHOLDERS in India have usually tended to vote with their feet and whether they’re institutions or individuals, activism is rare. Also, while they do voice their disapproval by selling the shares, more often than not, stocks have bounced back; the steps taken by managements may seem detrimental to shareholders at that point, but investors clearly believe there remains good value. Indeed, although a host of proxy advisory firms have cautioned shareholders time and again, pointing out proposals that are against their interests, few appear to have paid heed.
Late last month, Maruti Suzuki India (MSIL) said it would not be putting up the new plant at Sanand in Gujarat; it would merely be buying the vehicles from a subsidiary of Suzuki Motor Corporation (SMC) that would sell them to MSIL at cost plus incremental capex. Commenting on the development, InGovern observed that a pliable MSIL board had done minority shareholders an injustice. “It looks like the SMC subsidiary will enjoy the benefits of no business risk with assured vehicle offtake by MSIL and assured return on investments, while MSIL will bear the business risk,” the note said. The Maruti stock, which lost 8.1% following the announcement, recovered 7% the following day to R1,673.85 and now trades a tad lower at R1,648 levels.
Maruti, together with Hindustan Unilever, has also been at the receiving end of proxy advisory firms for paying out high royalties; IIAS had observed some time back that subsidiaries of MNCs were paying out royalties faster than they were growing revenues. “The managements that negotiate the royalty arrangements are employed by the company with whom they negotiate. Loyalty runs in their (MNCs) bloodstream as they sit to negotiate with their own bosses. This is not conducive to head butting,” IIAS wrote in late January 2013. While the HUL stock languished for a bit after the firm announced in January 2013 that it would be upping royalties to 3.15% of sales, roughly twice what it was paying then, it subsequently rallied more than 50% by end-July because Unilever announced a buyback at R600 per share.
In February, 2012, Vedanta Resources said it wanted to eliminate cross-holdings and consolidate its stakes in Sterlite, Sesa Goa, Vedanta Aluminium (VAL), Madras Aluminium and Cairn India into a single entity Sesa Sterlite. Despite the apprehension of proxy firms that the new entity would be burdened by debt since the combined borrowings of Rs 50,000 crore