InGovern, an independent corporate governance research and advisory firm, has raised serious concerns over the future of pharmaceuticals and chemicals company Hikal and sought a professional Managing Director/CEO to run the company on a day-to-day basis due to the ongoing tussle between the promoters Hiremath and Baba Kalyani families.
Shareholding in the company is a three-way split with the Hiremath family owning 34.84 per cent, the Kalyani Group owners of Baba Kalyani holding 34.01 per cent and the minority public shareholders holding 31.15 per cent.
The allegations
Hikal’s Non-executive Director Sugandha Hiremath had accused her brother Bharat Forge CMD Baba Kalyani of trying to marginalise and oust her and her husband from the firm.
Sugandha claimed that Kalyani failed to honour the family agreement of transferring his entire stake in the company to her. However, Kalyani has disputed her claim of stake transfer. Incidentally, Sugandha has moved the Bombay High Court for the enforcement of a family settlement of 1994.
In the absence of an agreement between the two warring promoter groups, the above proportion of shareholding makes it difficult for any special resolution to be passed, which is likely to slow down decision-making and resultantly, the interest of the company is likely to be compromised, said the proxy advisory firm.
The fate of the 75,000 shareholders of Hikal hangs in balance as the company operates in a highly competitive sector and its lukewarm operational performance.
The ongoing dispute between the two sets of promoters also means that institutional shareholders will stay away from taking any fresh exposure to the stock. As of March-end, foreign and domestic institutional investors own only 6.74 per cent of shares in the company.
Hurdles to growth plans
The dispute also puts the company into an uncertain future with respect to its growth plans as management bandwidth could be severely constrained and distracted given that the Managing Director of the company is a member of one of the warring promoter groups.
Of the five promoter directors, three directors belong to the Hiremath family, and two directors belong Baba Kalyani group. The two independent directors — Prakash Mehta and Kannan Unni — cannot be considered independent as they have been on the Board of the company for 29 years and 23 years, said InGovern.
The Board of Directors itself needs to be recast by induction of truly independent directors and adhering to SEBI regulations on the proportion of independent directors of 50 per cent.
About 60 per cent of the Directors are aged above 70 years, with two independent directors Prakash Mehta and Kannan Unni being aged 80 years.
The current Managing Director has been facing a number of criminal cases filed in the last two years. Given the warring promoters, there is a need for separation of management of the company and its ownership, said InGovern.
The company recorded moribund sales growth and has decreasing operating profits and net profits. This has also meant that stock price has been rangebound over one-year and five-year timeframes. ROEs have been in the mid-teens and sales growth has slowed.