MapmyIndia's minority shareholders are raising concerns over the board's recent decision to hive off its consumer-facing mapping business into a separate business, to be led by CEO Rohan Verma, son of co-founder and CMD Rakesh Verma.
Shareholders reacted sharply to the announcement when it was made public on December 1, sending the stock price lower below the listing price, and forcing the promoters to clarify that no company funds will be used by the new entity.
"We've heard the concerns of minority shareholders over the last few days, and for that reason, I am not going to be taking this CCD money from MapMyIndia. I will put in my own funds to run this consumer business. I hope that allays the concerns that people have," Rohan Verma, the current CEO and Executive Director at MapMyIndia (CE Info Systems) told CNBC-TV18 on December 3.
However, the decision to hive off the B2C venture into a separate company has soured the sentiment for some investors, who believed in the opportunity that the consumer-facing business offered.
What was Announced
MapmyIndia had on December 1 announced that current CEO and Executive Director Rohan Verma will float a new B2C venture and give up all executive responsibilities in the listed company, only staying on as as a non-executive member of the board from April 2025. CE Info System's press statement said the decision was 'in sync' with the company's 'strategic initiative to support and nurture innovative businesses'.
It was further informed that MapmyIndia will take 10% stake in the new venture and provide an 'additional funding' of Rs 35 crore via CCDs, a decision approved by the board. MapmyIndia's leadership would be spearheaded by founders, Rakesh and Rashmi Verma, along with the management team, said the co-founder and CMD.
Why Outside the Existing Company
CE Info System cited the reason that since a new venture requires 'dedicated focus to build', thus, Rohan Verma proposed to the board to fund the entity outside the company. The company said the new consumer business will 'complement and showcase' MapmyIndia’s core strength of B2B and B2B2C businesses, while focusing 'exclusively' on the B2C segment.
Sharing the Mappls IP
It was also proposed that the new company will use MapmyIndia’s retail brand Mappls, and Mapmyindia will continue to have access to the brand for 'B2B2C and B2G2C offerings', effectively delineating the consumer facing business from the listed entity.
What Worried the Investors
The decision to hive off some of the consumer-facing mapping and navigation businesses offering promise of high growth too has rattled some of the minority investors and analysts. The Mappls Mall and Travel businesses, still at the incubation stage, will be transferred to the new company along with Mappls Gadgets, which offers trackers, dashcams, navigation cum entertainment systems through D2C or e-commerce channels.
Navigating the RPT
The board said it carefully considered the Related-Party Transaction rules as per the compliance requirement, and MapmyIndia founders Rakesh and Rashmi Verma will have no part in the new entity.
New Entity - Ownership
Rohan Verma would be the 90% stakeholder in the new company with the balance 10% being with MapmyIndia, CE Info Systems said.
What Happens to the CCDs
The board had initially approved that MapmyIndia will invest Rs 35 crore in Compulsorily Convertible Debentures (CCDs) of the new company, which will convert to equity either after 10 years, or at a 25 percent discount to any third party valuation, whichever is earlier. "The future capital requirement will be taken up by the MapmyIndia board at appropriate time," the company had said on December 1.
However, facing minority shareholders' ire, CEO Rohan Verma told CNBC-TV18 that the company will not take any money from MapmyIndia, and instead run the new company with 'own funds'.
MapmyIndia would instead by getting a 10% stake in the new company for only Rs 10 lakh.
Read More: MapmyIndia: Does the correction provide an opportunity?
Unanswered Questions
Several market participants criticised the decision, with Ambareesh Baliga asking on social media platform X if the decision is 'short changing' the shareholders?
InGovern Research in a note on December 3 asked if Rohan Verma's presence on the board till April 2025 could influence decisions relating to the new B2C entity. "This dual role may blur lines of governance and accountability," it added.
Investors are asking also why Rohan Verma chose not to helm the new consumer-facing business within CE Info Systems, and instead chose to float a separate company, while offering only 10% stake to MapmyIndia and keeping the rest to himself.
The new company would be sharing the Mappls brand identity, and does a 10% stake in the new company suffice the compensation or royalty?
The consumer-facing mapping and navigation businesses promise high growth potential, and stripping them off the listed entity does raise questions about whether minority shareholder interests have been ignored by the board, in this instance.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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