MapMyIndia’s move to shift B2C business to founder’s son sparks firestorm

MapMyIndia's move to shift B2C business to founder's son sparks firestorm

2024-12-03 05:30:19 :

MapMyIndia parent CE Info Systems Ltd on Friday informed stock exchanges that CEO Rohan Verma will resign and launch a new business-to-consumer (B2C) venture. The company will transfer its Mappls Mall and Travel apps for hotel and flight bookings to the new company.

The company provides data for Apple Maps and Amazon Alexa, and by fiscal 2024, $Revenue 379.4 Crores. Rakesh Verma, co-founder, chairman and managing director, said B2C business does not exceed $Revenue of 50 Lakhs.

Rohan Verma will own 90% of the new company, while MapMyIndia will invest $1 million to acquire 10% equity and invest $Rs 35 crore was raised through Compulsory Convertible Debentures (CCDs).

ALSO READ | Mint Explainer: Ola Maps, MapMyIndia, Google, and the Nationalism Conundrum

“As the consumer business needs to focus on building Rohan Verma, MapMyIndia’s CEO and Executive Director proposed to the Board of Directors to fund a new venture outside the company,” Rakesh Verma said in a prepared statement on December 1.

Rakesh and his wife Rashmi Verma founded MapMyIndia in 1995 with the aim of creating digital maps of India. The company will go public in 2021 with a market capitalization of $9,174 crore as of Monday. Its shares closed down 3.5% $1,692 points, while the Sensex ended up 0.6% at 80,248 points. MapMyIndia’s shares have gained 18.1% since its listing three years ago, compared with a 41% return on the BSE Sensex.

“Rohan’s resignation as CEO could create a leadership vacuum,” JM Financial analysts Abhishek Kumar, Anuj Kotewar and Nandan Arekal wrote in a Nov. 30 note. “The company believes that under the guidance of Mr. Rakesh Verma , its leadership team has sufficient capabilities.”

More than two dozen analysts and investors questioned management during nearly two hours of interactions Monday night to allay concerns that minority shareholders were being unfairly dealt with by the deal.

ALSO READ | MapmyIndia aims to $Revenue to touch Rs 1,000 crore by FY27 but faces huge hurdles

Envision Capital’s Nilesh Shah asked management why there was no royalty sharing agreement in place for the deal, considering that MapMyIndia was offloading one of its consumer-facing brands, Mappls “I don’t know what data the independent board provided and what data they used,” he said to the new entity.

Verma, the 71-year-old founder of MapMyIndia, disagrees. “I have been in business for 30 years and I can tell you that I have never done business at the expense of good corporate governance. This business deal is for MapMyIndia, not against MapMyIndia,” he said .

Since this is a related party transaction, the board and audit committee should inform shareholders of the potential for new business. ” said V. Balakrishnan, former CFO of Infosys Ltd and founder of venture capital fund Exfinity Ventures. Have they evaluated any alternative proposals to enter this segment? Why only 10% minority stake and what is the value of CCD ? $If the new company cannot raise funds within 10 years, Rs 35 crore will be converted,” Balakrishnan questioned.

ALSO READ | Government completes GIS mapping of entire highway network

“On the face of it, MapMyIndia shareholders are taking all the risk in the form of equity in the new company, but with limited upside. The best approach would be to start with a 100% subsidiary and then get external validation so that the entire value creation As a shareholder of MapMyIndia, the CEO can be compensated through performance-based stock options,” said Balakrishnan.

Verma says consumer business is becoming a ‘distraction’ Mint. “So, after talking to advisors and investors, we decided that for the benefit of the company it would be best for us to pursue this transaction. Phone Pe and other investors were not keen on us accumulating losses because of the consumer business,” Verma said.

Since the transaction involves MapMyIndia injection $Rs 35 crore from CCD, less than 10% of company revenue $The deal, worth Rs 379.4 crore, does not require approval from MapMyIndia’s minority shareholders, Verma added.

ALSO READ | Gen AI takes center stage at TCS and Infosys annual general meetings

Two proxy advisory firms challenged the deal.

“Capital allocation and succession planning are core to the board’s mandate. In this case, the company has shied away from leadership changes. When it comes to capital allocation, it has outsourced decisions,” said Amit Tandon, founder and managing director Tandon) said. Director of Institutional Investor Advisory Services India Ltd (IiAS), a proxy advisory firm.

Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research, said: “The purpose of this transaction is to leverage the company’s resources (money, data, brand) to fund the company’s business, with the promoters getting 90% of the proceeds.” “The essence , like venture capital funds, diverting resources to wealth creation for seed sponsors is a red flag,” he added.

Verma and her family own 51.67% of MapMyIndia. Payments app PhonePe first invested in MapMyIndia in 2015 when it acquired a stake from its parent e-commerce company Flipkart. In 2020, PhonePe became an independent company.

“MapMyIndia’s investments in the B2C segment (Mappls) have impacted margins while also diverting funds away from B2B initiatives (IoT-led and drone business). Hence, divesting the B2C business should help the company strengthen Focus on B2B/B2B2C segment. This should improve MapMyIndia’s profit/ROCE profile,” analysts at JM Financial wrote in a note last week.

and read | Google Maps rivals in India’s tech revolution

Follow us On Social Media   Twitter/X

Join WhatsApp

Join Now

---Advertisement---