C.E. Info Systems Ltd (MapMyIndia) is a classic case of throwing out the minority shareholders from a futuristic and lucrative business on the basis of the logics which are absurd in nature. The MMI has decided to transfer its B2C business to a new entity which will be headed by Mr. Rohan Verma who is son of founder shri Rakesh Verma and also is a director and CEO of the company. The MMI will invest Rs. 10 Lacs for 10% equity in the new entity and will also invest INR 35 Cr as zero coupon CCD in the new entity. The rest 90% equity will be held by Mr. Rohan Verma who is son of founder Mr. Rakesh Verma. The logic given behind this move is that the B2C business is a cash burning business and is impacting the margins of the MMI. In order to maintain the margins and ROCE, the said transaction is being done. Founder Mr. Rakesh Verma said on the concall that he has met several investors and all are concerning about the falling margins and that is why the B2C business is being transferred to a new entity. It is worth noting the Mappls (app) which has 25 million downloads will be transferred to the new entity. I attended the entire concall. The promoters communicated their logic and rationale in fancy English words but the fancy words cannot change the reality. Here is the extract from the press release ;

“Brand and Business restructuring – The new company will be using the MapmyIndia’s retail brand Mappls, whereas Mapmyindia which uses the brand for its B2B2C and B2G2C offerings will continue to have access to the same. Mappls Mall and Travel which is in the incubation stage will be transferred to the new company along with Mappls gadgets for consumers marketed through D2C or ecommerce channels. MapmyIndia will have access to anonymized data collected by the Mappls app to improve MapmyIndia’s map data. The new company will operate as an independent entity and bear all expenses related to its business be it people cost, marketing cost and cloud cost.

The ownership structure and funding – Rohan will hold 90% stake in the new company while the balance 10% will be with MapmyIndia. The company will also be subscribing to Rs. 35 crores worth of CCDs of the new company. The CCD will convert to equity either after 10 years or at a 25 percent discount to any 3rd party valuation of new company whichever is earlier. The terms have been approved by the board. The CCD money will be invested in the new company. The future capital requirement will be taken up by the MapmyIndia board at appropriate time.”

Here is how this is a case of bad corporate governance and a case of unfair treatment to Minority shareholders :

1. MMI is transferring the futuristic B2C Business and Mappls brand to a new entity which will be 90% owned by son of the founder Shri Rakesh Verma. In addition to that, MMI will invest zero coupon CCD of Rs 35 Cr in the said entity. It means it is giving 90% of its B2C business and Rs 35 Cr to the son of the founder.
2. It is worth noting that the Mappls app has 25 million downloads which is a huge number.
3. Mr. Rakesh Verma told in the Concall that the investors are unhappy with the falling margins. Mr. Verma probably forgot that the investors are giving superb valuation of Zomato and other B2C companies which are not even able to clock the profit. I don’t think any investor has advised them to do this transaction.
4. It is just like giving the B2C business for free to Rohan Verma along with Rs, 35 Cr a zero coupon CCD. This is daylight robbery with the minority shareholders.
5. They just said that Mappls will be transferred to the new company. But at what valuation ? They are silent over this. I conclude from the concall that the Mappls with over 25 million downloads will be transferred at a meagre amount.
6. The role of independent directors is not out of question. I am unable to understand that how they have approved this transaction.
7. The entire transaction is structured in such a way that it can be approved at board level and there is no need to go to the shareholders for approval.

What should have been done :

The MMI should have demerged the Mappls into a separate entity with the shareholding mirroring the same as of MMI. If any investor who is unhappy with the cash burn in B2C business, could have exited from the resulting company. Obviously, in that case, Mr. Rakesh Verma would not be able to give 90% of the B2C business to his Son. पुत्र मोह बड़े से बड़े समझदार को भी धृतराष्ट्र बना देता है

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Vinay Kumar Taparia

SEBI Registered Research Analyst
Registration No. INH000018276

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