The infighting between the two promoters of Hikal—Baba Kalyani and sister Sugandha Hiremath—has put the company’s growth at stake, InGovern has said in a note.
The corporate governance firm has called for a change in the management and an overhaul of its board to protect the interest of minority shareholders, who own almost a third of the specialty chemicals company.
The Kalyani and Hiremath families are mired in a legal dispute, with the latter seeking transfer of ownership of shares held by the Kalyani group, citing nearly three-decade old family arrangement.
The dispute is being heard by the Bombay high court.
“The dispute puts the company into an uncertain future with respect to its growth plans as management bandwidth could be severely constrained and distracted given that the managing director of the company is a member of one of the warring promoter groups,” InGovern has said.
“Given the fact that the company operates in a highly competitive sector and in the background of its lukewarm operational performance, the fate of around 75,000 shareholders of Hikal hangs in balance.”
Hikal’s shareholding is divided into three main blocks, with the Hiremath family owning 34.84 per cent, the Baba Kalyani group holding 34.01 per cent (on which the Hiremath family is staking claim) and the public shareholders holding the remaining 31.15 per cent.
“In the absence of an agreement between the two warring promoter groups, the above proportion of shareholding makes it difficult for any special resolution to be passed, which is likely to slow down decision-making and resultantly, the interest of the company is likely to be compromised,” InGovern has said.
The voting advisory firm has said the dispute between the promoters is discouraging institutional investors from taking fresh exposure in the company.
As of March 31, 2023, foreign and domestic institutional investors (FIIs and DIIs) held only 6.74 per cent stake in the company.
InGovern has called for an overhaul of the company’s board and also demanded installation of a professional management.
“Due to the splintered board between the two warring promoter groups, there is a need for separation of management of the company and its ownership.
"This is a fit case for a professional managing director or chief executive officer to run the company on a day-to-day basis,” it has said.
“The board lacks effective representation of minority shareholders and badly needs a board overhaul with many independent directors serving for long tenures,” InGovern has further said.
At present, Hikal’s board has five promoter directors, with three belonging to the Hiremath family and two directors belonging to the Kalyani group.
InGovern has said two independent directors if Hikal have served from more than 23 years and “cannot be considered independent.”
It has further observed that around 60 per cent of Hikal's board is composed of directors aged 70 years or more.
