MapMyIndia move to shift B2C biz to founder's son kicks up a storm

On Friday, MapMyIndia's parent C.E. Info Systems Ltd informed stock exchanges that chief executive officer Rohan Verma would step down and start a new business-to-consumer (B2C) venture. The company will transfer its Mappls Mall and Travel app for hotel and flight booking to the new company.

The company, which provides data to Apple Maps and Amazon's Alexa, ended FY24 with ₹379.4 crore revenue. According to co-founder, chairman and managing director Rakesh Verma, the B2C business is not more than ₹50 lakh in revenue.

Rohan Verma would own 90% of the new venture, while MapMyIndia will spend ₹10 lakh to acquire 10% equity and invest ₹35 crore through compulsorily convertible debentures (CCDs).

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"As the consumer business requires a dedicated focus to build Rohan Verma, CEO and executive director of MapMyIndia, proposed to the board to fund a new venture outside the company," Rakesh Verma said in a prepared statement on 1 December.

Rakesh and his wife Rashmi Verma founded MapMyIndia in 1995 to create digital maps of India. The company, which went public in 2021, was worth ₹9,174 crore as of Monday. Its shares closed 3.5% lower at ₹1,692, even as the Sensex ended 0.6% up at 80,248 points. Since its market debut three years ago, MapMyIndia's shares are up 18.1%, compared to the BSE Sensex, which has returned 41%.

"Rohan's departure as CEO could create a leadership vacuum," JM Financial analysts Abhishek Kumar, Anuj Kotewar and Nandan Arekal wrote in a note dated 30 November. “The company is confident that its leadership team, aided by Mr Rakesh Verma's guidance, is capable enough."

On Monday evening, over two dozen analysts and investors quizzed the management in a nearly two-hour interaction done to assuage concerns about minority shareholders getting a raw deal because of this transaction. 

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"I don't know what data the independent board was provided and what they used," said Nilesh Shah of Envision Capital, asking the management why the transaction does not have royalty sharing agreement considering MapMyIndia is transferring one of the consumer-facing brands Mappls to the new entity.

MapMyIndia founder Verma, 71, differed. "I've been in business for 30 years, and I can tell you I've never done business at the expense of good corporate governance. This business transaction is pro-MapMayIndia rather than anti-MapMyIndia," he said."

As this is a related party transaction, the board and the audit committee should tell shareholders the potential of the new business," said V. Balakrishnan, a former chief financial officer at Infosys Ltd and founder of Exfinity Ventures, a venture capital fund. "Have they evaluated any alternate proposals to get into this segment; why only a 10% minority stake is taken, and at what value the CCD of ₹35 crore will be converted if the new company is not able to raise money in 10 years," Balakrishnan questioned.

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"On the face of it, this looks like the shareholders of MapMyIndia are taking all the risks with limited upside in the form of their equity stake in the new company. The best way would have been to start as a 100% subsidiary and then get external validation so that the whole value creation would reside with the shareholders of MapMyIndia. The CEO could have been compensated with performance-based stock options," said Balakrishnan.

Consumer business was becoming a "distraction", Verma told Mint. "And hence, after speaking with consultants and investors we decided that in the interest of the company, it is better we go with this transaction. Phone Pe, along with other investors, was not keen on us accumulating losses because of the consumer business," Verma said.

Since the transaction involves MapMyIndia infusing ₹35 crore through CCDs, which is less than 10% of the company's revenue of ₹379.4 crore, this transaction would not need approval from the minority shareholders of MapMyIndia, Verma added.

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Two proxy advisory firms questioned the transaction.

"Capital allocation and succession planning are at the heart of what boards are tasked with. In this instance, the company has side-stepped a leadership change. On capital allocation, it outsourced the decision-making," said Amit Tandon, founder and managing director at proxy advisory firm Institutional Investor Advisory Services India Ltd (IiAS).

"This transaction has been undertaken to fund a company's business using company resources - funds, data, brand - with the promoter getting 90% of the upside," said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research. “Essentially, like a VC fund and transferring resources to seed promoter's wealth creation. This is a red flag," he added.

Verma and his family own 51.67% of MapMyIndia's shares. Payments app PhonePe had acquired its shares from its parent company, Flipkart, the e-commerce firm, when it first invested in MapMyIndia in 2015. In 2020, PhonePe became a separate company.

"MapMyIndia's investments in B2C segment (Mappls) was impacting margins, while diverting capital from B2B initiatives–IoT-led and drone businesses. Hiving off B2C efforts should, therefore, help the company sharpen its focus on B2B/B2B2C segments. This should improve MapMyIndia's margin/ROCE profile," analysts at JM Financial wrote in a note last week.

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