Proxy firm opposes TIL asset sale plan

Image via Shutterstock
Proxy advisory firm Stakeholders Empowerment Services (SES) has recommended that the shareholders of TIL (formerly Tractors India) vote against the company’s plan to sell off its profit-making Caterpillar dealership business, citing transparency and alleged shortcomings in conflict-of-interest management.

TIL plans to sell interests in subsidiaries holding this business to a company connected to the managing director (MD) of one of these subsidiaries.

Life Insurance Corporation of India (LIC) is the largest public shareholder with 10.38 per cent stake. State-owned general insurance firms General Insurance Corporation of India (1.99 per cent) and Oriental Insurance (1.2 per cent ) are among large minority shareholders. Some mutual funds and financial institutions together hold around one per cent.

While the management says the institutions have not communicated any discomfort, it is not clear what position these large shareholders will take in the vote.

The ballot closes on Monday.

TIL has been carrying on the business of dealership of products of Caterpillar Inc, US for the last six decades in North and East India, Nepal and Bhutan. It has been dealing in Caterpillar’s earthmoving, construction and mining equipment, spares, etc, and providing related services through its wholly-owned subsidiaries — Tractors India Private Limited (TIPL), India; Tractors Nepal Private Limited (TNPL), Nepal; and TIL Overseas Pte Limited (TILO), Singapore.

While TIL itself reported a net loss of Rs 29 crore, TIPL is part of the business that earned the company a significant profit of Rs 37 crore in FY15.

TIL proposes to sell this profit-making Caterpillar dealership businesses to an entity called Goodearth Minetech (GMPL) for Rs 350 crore. Sunil Kumar Chaturvedi, who is the managing director of TIPL, is also a director in Goodearth.

In a report, SES said, “How come GMPL with a paid-up capital of Rs 1 lakh is going to support a business which is being sold at a price of Rs 350 crore plus. And, if it is being supported by the current MD of TIPL, the shareholders would certainly like to know his source of funds.”

SES also referred to the company’s statements on the challenges being faced by its residual businesses. “While on the one hand the company states it wants to enhance manufacturing facilities and expand range, on the other it complains about underutilisation. When a business faces such problem, it gets rid of problem asset and not the lucrative business,” the proxy firm said.

SES recommended that shareholders reject the transaction and ask for forensic audit of subsidiaries, especially TIPL and “ensure that business being conducted by TIPL under Mr Chaturvedi was above Board in all respects”.

In a detailed response, Sumit Mazumder, managing director of TIL, said, “We have not received any indication of discomfort from any of our institutional holders. There has been total transparency. Full disclosure of the proposed transaction including disclosure of the intending buyer, its interest in the transaction, the subject matter of the transaction, the price and its basis have all been disclosed to the shareholders.”

Mazumder added that the Board of Directors recommended the sale of the dealership business, after much deliberation. “They firmly believe that TIL should focus on the manufacturing aspect and unlock all possible funds to invest in manufacturing.”

TIL has, over the years, acquired strong manufacturing capability of international standards, strong research & development capability, and an effective supply chain. TIL currently has four technology transfer agreements with world leaders, manufacturing products for the infrastructure space. Additionally, in the recent years, TIL has acquired over 250 acres of land where a new factory was established a few years ago, on part of the land. There are four more factories in the planning stage, to be established.

“Additionally, TIL has commenced exports of finished goods and components. Clearly, manufacturing is the future of India and in keeping with the present Make in India policy,” Mazumder added.

The shares of TIL have been on the decline. From the highs of Rs 860 a share in July last year, the shares have dropped nearly two-thirds to Rs 290.30 on the BSE during Monday’s trade. At this price, the market capitalisation of the entire company was at Rs 291 crore.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel