MC Explains: What is the controversy on MapmyIndia’s decision to separate its B2C business?

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MapmyIndia (CE Info Systems) has faced controversy following  its decision to transfer its B2C business into a new entity, which includes the navigation system, Mappls. MapmyIndia is a major digital mapping and geospatial company.

What is the controversy?
On November 29, MapmyIndia announced plans to split its operations into two entities. The parent company, CE Info Systems, will retain its core business-to-business (B2B) and business-to-business-to-consumer (B2B2C) segments, while a new entity will handle the business-to-consumer (B2C) segment. This new company will focus on consumer technology products such as apps, navigation tools, and other end-user solutions. Rohan Verma, the current CEO of MapmyIndia, will step down from his role in March 2025 to lead the new venture.

While the new entity will be funded by Rohan Verma’s personal funds, MapmyIndia announced that it would invest around Rs 10 lakh to acquire a 10 percent equity stake, with an option to invest an additional Rs 35 crore through Compulsorily Convertible Debentures (CCDs).

How has the reaction been?
The market reacted negatively to the news on concerns that a core part of the business was being spun off and minority shareholders were being “shortchanged” in the process.

MapmyIndia’s share price dropped by about 7 percent over the last five days and has fallen approximately 25.27 percent over the past year. At close on December 5, the stock was trading at Rs 1,625.

Talking about the concerns, Shriram Subramaniam, Founder and Managing Director of InGovern Research Services, India's first proxy advisory firm, noted that this transaction has been undertaken to fund a business of the company using company resources - funds, data, brand - with the promoter getting 90 percent of the upside. “Essentially like a VC fund and transferring resources to seed the promoter's wealth creation. This is a red flag and now it will have to be observed whether PhonePe as the largest non-promoter shareholder approves this transaction when this is put to vote before shareholders," he said.

In a conversation with CNBC-TV18 on December 3, the management stated that the B2C business would have an annual cash burn rate of Rs 30 crore, which is expected to increase. They clarified that no money from MapmyIndia would be invested in the new entity and that they will not be going ahead with the CCD. “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 said.

But Subramaniam added that this disclosure is yet to be made to the exchanges which if not done could be an issue of non-compliance of SEBI regulations.

A slightly positive view came from JM Financial, in its latest report. The note highlighted that MapmyIndia’s investments in the B2C segment (Mappls) were impacting margins and diverting capital from B2B initiatives, such as IoT-led and drone businesses. Analysts believe that separating the B2C business will help the company sharpen its focus on the B2B and B2B2C segments. They also noted that the new entity could explore external fundraising, limiting investment requirements from the parent company. This would improve MapmyIndia’s margin and ROCE profile.

However, the departure of the current CEO could create a “leadership vacuum.” Despite this, the report stated that the company is confident its leadership team, supported by founder and Chairman Rakesh Verma’s guidance, is capable of managing the transition. MapmyIndia has said that they will continue to own the source code, brand, and data of the Mappls B2C app, the brokerage added.

Why has the company decided to make this change?

In an exchange filing, the company stated that “as the consumer business requires a dedicated focus to build,” Rohan Verma, CEO and Executive Director of MapmyIndia, proposed that the board fund a new venture outside the company. The company emphasised that the proposed consumer business would complement and showcase MapmyIndia’s core strengths in the B2B and B2B2C markets while focusing exclusively on the B2C segment.

In an investor call following the announcement, the management stated that they had explored all possible options. Managing the B2C business as a vertical within the company caused a decline in margins, impacting the P&L. Creating a subsidiary was also considered, but retaining over 20 percent of the ownership would not have resolved the financial impact. Additionally, the company lacked the necessary consumer-focused expertise, apart from select leaders. Establishing an independent entity for B2C was deemed the best option, allowing it to grow autonomously while maintaining a collaborative relationship with MapmyIndia.

What was the outlook on MapmyIndia prior to the announcement?
In the second quarter of  FY24, CE Infosystems reported an 8.2 percent year-on-year (YoY) decline in net profit at Rs 30.3 crore. Revenue from operations increased 14 percent to Rs 103.7 crore compared to Rs 91 crore in the same period last year. EBITDA fell 7.8 percent to Rs 37.6 crore.

At the time, analysts at Anand Rathi anticipated a compounded annual growth rate (CAGR) of 28 percent in revenue and 25 percent in profit after tax (PAT) over FY24–27, supported by a strong FY25 opening order book of Rs 1,370 crore. This included a Rs 400 crore map-led contract with Hyundai-Kia, announced in the fourth quarter of FY24, which began contributing Rs 20 crore in revenue per quarter starting September 2024. The company also expected growth in its C&E business to resume in the second half of FY25.

CE Infosystems is currently valued at 57.3x (1-year forward PE) as per Bloomberg estimates, compared to a pre-announcement PE of around 62x.

Is MapmyIndia also making other investments?
MapmyIndia recently announced investments in other technology firms to expand its capabilities. It acquired a 19.84 percent stake in Kaiinos Geo Spatial Technologies for Rs 2 crore. Kaiinos specialises in smart strategy systems for geographic information systems (GIS). Additionally, MapmyIndia invested Rs 3 crore to acquire a 9.37 percent stake in SimDaaS Autonomy, which focuses on simulation technologies for autonomous systems and advanced driver-assistance systems (ADAS).

What is CE Info Systems' business?
Established in 1995, CE Info Systems Limited offers various platforms and products, including Maps as a Service (MaaS), Software as a Service (SaaS), and Platform as a Service (PaaS). In the automotive sector, MapmyIndia provides in-car navigation systems and geospatial solutions to manufacturers like Hyundai and MG Motor. Its Mappls brand offers navigation and location-based services directly to consumers.