Now that the question of governance practices at Sharda Motors (SMIL) has come up, allow me to add a perspective from the company’s history. Whether it matters or not is for you to decide.
Sharda Motors was founded by N.D.Relan, a first generation entrepreneur in 1986 and was engaged in the manufacture and assembly of auto components and white goods. As the founder promoter grew old, son Ajay Relan took over as MD and was running the business. The 75 % promoter shareholding was distributed across various members of the Relan family, such as Mr. N.D Relan, his wife Ms. Sharda Relan, two sons Ajay & Rohit, their wives and children etc. Ajay’s brother Rohit Relan and mother Ms. Sharda Relan were also on the Company Board. In June 2016, the founder N.D.Relan passed away. His personal stake in SMIL was inherited by his wife, who appears to have gifted it entirely to Ajay. A dispute broke out between the two brothers and Rohit Relan was ousted from SMIL Board. He then filed a petition against Ajay and SMIL management. Meanwhile, SMIL also had multiple JVs some of which were controlled by Rohit, and SMIL filed counter petitions against them. Bharat Seats was another group company, it was controlled by Rohit Relan. After a couple of years of litigation, the Relans announced a Family Settlement in February 2019.
According to the terms of the settlement intimated to the stock exchange by SMIL, inter alia, the seating business of SMIL (& stakes in two other JVs) would be hived off from SMIL and transferred to a separate SPV, to be controlled by Rohit Relan (this SPV is now listed separately as NDR Auto Components). In return, Rohit Relan would give up his personal 25.19 % stake in SMIL to Ajay. In other words, the settlement involved separation of cross holdings within the various Relan Group of companies, with Ajay Relan getting full control of SMIL and Rohit Relan getting Bharat Seats and the SPV (i.e. NDR Auto Components).
But there was a trick. The seating business of SMIL at that time was around 1/3rd of the company revenues (Rs.379 crores out of Rs.1155 crores in the FY18). Thus, Ajay Relan was giving away 1/3rd of SMIL in return for a 25% additional stake in SMIL for himself. Minority shareholders would get nothing, they just stand to lose 1/3rd of the company for nothing.
I held a small position in SMIL at that time. As I dug deeper, more shortcomings on governance came to light, such as questionable related party transactions, excessive promoter remuneration, board composition and inconsistent & incomplete disclosures. For example, about the Family Settlement, Bharat Seats informed the stock exchanges that SMIL would give up control over its shareholding in the SPV ( i.e. NDR Auto) by giving a proxy over voting rights to Rohit Relan.
But this information was missing in SMIL’s disclosure to the stock exchange, which said the SPV would be operationally controlled by Rohit Relan.
“Operational control” only implies managerial delegation but relinquishing voting rights through a proxy is a much more serious matter, and would probably require shareholder approval.
On the whole, things didn’t look pretty. I exited, and haven’t tracked the company since then.
(Disc.: As mentioned above, no position now)
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