AGM : Cholamandalam Finance

The only issue that came up repeatedly at the recently held AGM of Cholamandalam Finance was the shareholder-unfriendliness of the company.

Granted that the company is conservative. But, Sundaram Finance which is the citadel of conservatism is declaring twice the dividend per share as Cholamandalam though SFL's earnings per share is almost the same, in fact marginally less. Cholamandalam has not issued any bonus share so far, again unlike Sundaram Finance.

If shareholders are not rewarded when the going is good, the PE Ratio of the company will continue to lag behind its peers'. Dividend Distribution Policy which the SEBI has mandated to be disclosed in both the annual report and the company's website, is not published in the annual report. The policy which is available on the website takes shareholders for a ride by disclosing that the Board will recommend dividend to the extent of nearly 20% of PAT minus transfers to statutory and regulatory Reserves. The Reserves account for nearly 50% of PAT every year. So dividend payout is only nearly 10% which is dismal. By contrast, Sundaram Finance declares 20 to 30% of its PAT as dividends.

The claim of Cholamandalam that it is professionally managed is therefore a myth.

Cholamandalam Investment and Finance Company - 37th AGM

CIFCO's 37th AGM was at The Music Academy (the main hall), Chennai on 31st July. The attendance was much thinner than the one for IDFC the previous day.

Shareholders were mainly concerned about the dividends declared by the company despite handsome financial results. The dividend payout ratio (the proportion of dividend to earnings ) is as low as 12% for 2014-15. The company is following an increasingly conservative policy vis-a-vis dividends. Company's Chairman, M.B.N.Rao, sought to justify this saying that the company is conserving funds for future business. Can the same argument be not advanced to reduce emoluments to top management?

The company has raised Rs.500 crore from one Dynasty Acquisition (FDI) Ltd. as compulsorily convertible preference share. A shareholder wanted to know the identity, owners and address of this company. The chairman did not respond. Raising Rs.500 crore from just one entity and not sharing details about this entity does not speak well of the company. (This was clarified by the company's MD on 3rd August when it was taken up with him. The Managing Director clarified as under:

"1) Why Rs.300 crore FCCPS was shown as a part of issued capital as on 31st March, 2014 and not 31st March, 2015. The amount was converted in 2010 itself.

When preference shares are redeemed, the redemption acts as an automatic extinguishment of issued capital. However, the same position is not the case when preference shares are converted in to equity shares – this does not automatically result in an extinguishment of the issued capital. We would need to apply specifically for capital reduction approval. Therefore, we continue to carry the issued capital in our books. However, subscribed  / paid-up capital will turn to zero upon conversion.

2) Who are the owners of Dynasty Acquisition (FDI) Ltd. ? What is the address of the company?

Dynasty Acquisition (FDI) Ltd., is a Foreign Corporate incorporated in Mauritius. 100% of the beneficial interest in Dynasty Acquisition (FDI) Ltd. is collectively owned by the following private equity funds:

Apax VIII-A L.P., Apax VIII-B L.P., Apax VIII-1 L.P. and Apax VIII-2 L.P (collectively, "Apax VIII funds").

Address of the Dynasty Acquisition (FDI) Ltd.:33, Edith Cavell Street, Port Louis, Mauritius" ).

It is interesting to note that Dynasty Acquisition (FDI) Ltd. will make capital gains of nearly 75% on conversion into equity in September, 2015 if the share price continues at the present level. Being Mauritius-based, the beneficial owners will be exempt from capital gains tax also. 75% Return in one year is a bonanza.

At the beginning of the meeting, the Chairman took shareholders' permission to have his speech which was circulated as read. One shareholder objected and insisted on the Chairman reading it. Thus, twenty minutes were unnecessarily wasted.