MapMyIndia in a bad corporate governance move transfers B2C business to founder’s son

C.E. Info Systems (MapmyIndia) has made some surprise announcements.

Rohan Verma, the CEO and Executive Director of the Company is stepping down from the CEO position to float a new B2C Venture
- He however, will continue to the Non-Executive Director of MapmyIndia
MapmyIndia will provide the following support to the new B2C Venture by Rohan
- It will transfer its Mappls Mall and Travel app for hotel and flight booking to the new company.
- It will take 10% stake in the new B2C venture and will also provide an additional funding of Rs 35 cr via CCD in the new company.
  - Rohan Verma will own 90% of the new business
According to MapmyIndia’s Co-founder, CMD Rakesh Verma (Rohan’s father), the B2C business is not more than Rs 50 lakh in revenue currently.

Looking from any angle, it’s difficult to see any merit in the above decision by the Board and the founders.

Rohan’s stepping down as CEO of MapmyIndia creates a significant leadership change and uncertainty.
Investment by MapmyIndia and transfer of some assets clearly indicate personal benefits to the founders at the expense of the interest of shareholders in the main Company (especially minority shareholders)
- Why couldn’t the new business incubated as a subsidiary of the main company?

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3 months ago

Update post the concall arranged by the management on the issue.

As per the management they took the call to transfer the business outside the group based on the investors’s feedback, majority of whom supposedly were not happy of company funding the losses of a typical B2C business
On the question of why no royalty payment (based on revenues) by the new company to mapmyindia, management says both the entities would be benefiting by each other’s business and hence no royalty.
Why only 10% stake and why Rs 35 cr of investment – they said it’s like any other start-up investment that they would have made. Here Rohan being involved, maymyindia’s board infact drew more comfort.
10% investment is in lieu of Rs 10 lakh investment by mapmyindia. Rohan would be investing Rs 90 lakh for his 90% stake.
Rs 35 cr CCD conversion would happen at 25% discount to the valuation at which the new entity would do the 1st external fund raise.

All in all, the management didn’t seem well prepared to handle investor queries.

Because, the Founder’s son is giving up the CEO position to run the new venture further makes the investors and analysts jittery (FOMO).

Author

3 months ago

Company has reversed some of it’s key announcements.

Retail brand Mappls and the associated apps will continue to be held by the Company.
No equity or debt investment will be made in the proposed new company.

No further announcement has been made wrt Rohan leaving the Company to set up the new Company.

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