No promoter in driver's seat at D-Mart

Neville Noronha, CEO & MD, Avenue Supermarts at the IPO press conference in Mumbai. Photo: Kamlesh Pednekar
Avenue Supermarts, which operates the successful D-Mart retail chain, will probably be the only listed company in India where promoter shareholding will be in excess of 80 per cent. Yet, they will have no executive board seat or say in the management.

 

The company’s Rs 1,870-crore initial public offering (IPO) will open on March 8 and close on March 10.

 

Founded by stock market ace investor Radhakishan Damani, Avenue Supermarts turned into a professionally-managed company since 2011.

 

Damani or family members do not have an executive role at Avenue Supermarts, which could be valued in excess of Rs 20,000 crore on listing. Manjri Chandak, daughter of Damani, is on the board, but in a non-executive director role.

 

Currently, Damani, along with three other family members and six group entities, owns 91.34 per cent stake. Chandak doesn’t own any shares in the company. After the initial public offering (IPO) — in which the company will issue around 62.5 million new shares to raise Rs 1,870 crore — the promoter group shareholding will fall to 82.2 per cent.

 

Damani’s hands-off approach, despite high shareholding, is in stark contrast with several leading Indian companies where promoters enjoy a tight grip over the management and company affairs.

 

Ramesh Damani (not related to founder RK Damani) is chairman and independent director (ID) on the board of Avenue Supermarts. The board also has former Securities and Exchange Board of India (Sebi) chairman C B Bhave as an ID. Meanwhile, Managing Director Ignatius Navil Noronha and Chief Financial Officer Ramakant Baheti are also on the board.

 

“There is no arrangement or understanding with the major shareholders…pursuant to which any of our directors were appointed on the board,” the company said in its offer document.

 

Damani, who is known in the market circle for his investment acumen, has built Avenue Supermarts from the ground up. He is known to have taken keen interest from sourcing to expanding the operations of D-Mart during its initial years. However, from 2011, the value investors handed over the reins to a team of professionals headed by Noronha.

 

“The management enjoys confidence and trust of the founder. The management has good professionals. The arrangement has worked very well, as you can see from the company’s performance. The system also provides an opportunity to employees to move up the ladder,” said Noronha.

 

While market experts hail the professionally-managed model of the company, they express doubts over how distant Damani stays from crucial business decisions.

 

According to J N Gupta, founder of proxy advisory firm SES, once the company goes public Avenue’s model might face challenges, given restrictions on communications under the new insider trading regulations.

 

“What is the methodology with how the promoters will interact with the board? How they will know what is happening in the company if they act like ordinary shareholders?” Gupta questions.

 

“The issue could get complicated if the board fails to carry out their duties. It is obvious that a promoter who owns 80 per cent stake would like to give directions to the company. Sebi will have to come up with a new framework for promoters to interact with the board,” he said.

 

Sources said during interactions with Sebi, at the time of clearing the IPO, the relationship between the management and the founders had come for discussion.

 

“The management assured Sebi there won’t be any violation of the law, as the promoters will be treated like strategic investors,” said an investment banker handling the IPO.

 

Avenue Supermarts in its offer document has said, “Our company depends on the knowledge and experience of one of our promoters and key management personnel for our growth. The loss of their services may have a material adverse effect on our business, financial condition and results of operations.”

 


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