Ultratech Cement Limitediias.in/downloads/IIASreports/F1.0 UltratechCementLtd-AGM-19Jul16... · 1 O...

Voting Advisory

June 2016 Ultratech Cement Limited 1

27 June 2016 Ultratech Cement Limited Annual General Meeting (AGM)

Company Profile BSE: 532538|NSE: ULTRACEMCO Industry: Cement Index: S&P BSE 100/NIFTY 100 Face Value: Rs 10 Fiscal Year End: March

Meeting Date: 19 July 2016, 3:30 PM

Proxy Deadline: 17 July 2016, 3:30 PM

Meeting Venue: Nehru Centre Auditorium, Discovery of India Building, Dr. Annie Besant Road, Worli, Mumbai 400 001

E-Voting Site: www.evoting.karvy.com

E-voting Period: 16 July 2016, 9:00 AM to 18 July 2016, 5:00 PM

Notice Date: 9 June 2016

Agenda Items

# Type1 Description of resolution IiAS

Recommendation See Legend

1 O Adoption of financial statements for the year ended 31 March 2016 See Analysis

We believe that a comprehensive review of the financials of a company is a critical exercise which often requires first-hand information and proper due diligence. We do not provide voting recommendations on resolutions for adoption of financial statements, given the limited time between receipt of the annual report and the shareholder meeting, but provides analysis of critical ratios.

2 O Declaration of dividend of Rs.9.5 per share (Face Value: Rs.10) FOR

The total dividend outflow including dividend tax for the year is ~Rs.3.1 bn. The dividend payout ratio for the year is ~13.7%. The company has increased the dividend by Rs. 0.5 per

share over the previous year.

3 O Re-appoint Mrs. Rajashree Birla as Non-Executive Non-Independent Director AGAINST

Mrs. Rajashree Birla has attended only 29% of the board meetings held in FY16 and 45% of the board meetings held over the past three years. While we recognize Mrs. Rajashree Birla plays an important role in the Birla group companies towards their CSR agenda and is a respected personality in the field of social development, we expect directors to take their responsibilities seriously and attend all board meetings. We have a 75% attendance threshold over a three-year period, while approving a director’s re-appointment.

G M R S T V

4 O Ratify the appointment of BSR & Co LLP as joint statutory auditors for one year FOR

BSR & Co LLP replaced Deloitte Haskins & Sells as joint statutory auditors in the 2015 AGM. They were appointed for a five-year period, with an annual ratification required by shareholders. Their ratification is in line with our Voting Policy on Auditor Rotation and with the requirements of Section 139 of the Companies Act 2013.

5 O Appoint Khimji Kunverji & Co as joint statutory auditors for a period of five years FOR

Khimji Kunverji & Co replace G P Kapadia & Co. as joint auditors. Their appointment is in line with the requirements of Section 139 of the Companies Act 2013.

G M R S T V

6 O Approve remuneration payable to NI Mehta & Co and ND Birla & Co as cost auditors of the company for FY17

FOR

The board has approved the appointment of NI Mehta & Co and ND Birla & Co as cost auditors for the year ended 31 March 2017 on a total remuneration of Rs 0.8 mn and Rs 0.9 mn respectively plus applicable taxes and out-of-pocket expenses. The total remuneration proposed to be paid to the cost auditors in FY17 is reasonable compared to the size and scale of operations.

7 O Appoint KK Maheshwari as Executive Director FOR

KK Maheshwari, 61, was appointed as the Managing Director of UltraTech Cement with effect from 1 April 2016. He is a Chartered Accountant and has been associated with the Aditya Birla Group for over three decades. His appointment is in line with statutory requirements.

8 O Appoint KK Maheshwari as Managing Director for four years and fix his remuneration

FOR

The estimated remuneration for KK Maheshwari for FY17 is Rs. 112.7 mn. His remuneration is commensurate with the size and performance of the company. His

www.iias.in

http://evoting.karvy.com/

http://www.iias.in/

https://twitter.com/IiASAdvisory

http://www.linkedin.com/company/institutional-investor-advisory-services-iias-

Voting Advisory


# Type1 Description of resolution IiAS

Recommendation See Legend

proposed remuneration is comparable to peers in similar-sized companies and in the industry.

9 O Appoint Ms. Alka Bharucha as Independent Director for five years FOR

Alka Bharucha, 59, is Partner and Co-founder, Bharucha & Partners. Her appointment is in line with statutory requirements.

10 O Appoint Atul Daga as Executive Director FOR

Atul Daga, 50, is the Executive Director and CFO of UltraTech Cement. His appointment is in line with statutory requirements.

11 O Appoint Atul Daga as Executive Director and CFO for five years and fix his remuneration

FOR

The estimated remuneration for Atul Daga for FY17 is Rs. 19.6 mn. His remuneration is commensurate with the size and performance of the company. His proposed remuneration is comparable to peers in similar-sized companies and in the industry.

12 S Approve private placement of secured non-convertible debentures of up to Rs.90 bn FOR

The company seeks shareholder’s approval for an aggregate long-term borrowing upto Rs.90 bn through issue of secured redeemable non-convertible debentures (NCDs) on private placement basis in one or more tranches. The NCDs which are proposed to be issued will be within the overall borrowing limits of the company.

13 S Approve borrowing limits of up to Rs 60 bn over and above the paid up capital and free reserves

FOR

As on 31 March 2016, UltraTech’s standalone borrowing and net worth were Rs.76.6 bn and Rs.207.4 bn respectively. The company’s proposed borrowing limit is Rs.264.0 bn. The company has clarified that the increase in limits has been sought because the company is expected to takeover additional debt of ~Rs. 130 bn on acquiring some cements assets of Jaiprakash Associates. While the proposed acquisition will strengthen Ultratech’s business profile, it will have a material impact on the company’s credit protection metrics. UltraTech’s outstanding ratings are CRISIL AAA/Rating Watch with Developing Implications/CRISIL A1+.

14 S Create charges/mortgages on assets of the company FOR

Secured loans generally have easier repayment terms, less restrictive covenants, and lower interest rates.

15 S Increase Foreign Institutional Investor (FII) holding limit from 24% to 30% FOR

Given that the FII shareholding has seen an increasing trend in the last few years (from 12.9% as on 31 March 2011 to 19.0% as on 31 March 2016), the company is proposing to increase the FII holding limit from 24% to 30% of its paid-up equity share capital. The increase will enable FIIs to further invest in the company.

[1] O/S: Ordinary/Special

IiAS comPAYre has been used for evaluating remuneration data

http://www.crisil.com/Ratings/RatingList/RatingDocs/UltraTech_Cement_Limited_March_04_2016_RR.html

http://www.crisil.com/Ratings/RatingList/RatingDocs/UltraTech_Cement_Limited_March_04_2016_RR.html

Voting Advisory


Company Overview UltraTech Cement Ltd (UltraTech), together with its subsidiaries, manufactures and sells cement and cement related products in India and internationally. Its products include Portland cement, Portland blast furnace slag cement, ready mix concrete and white cement. UltraTech was incorporated in 2000 and is headquartered in Mumbai, India

Promoters: Kumar Mangalam Birla & family Grasim Industries Ltd (60.2%)

Market snapshot Mkt Price (Rs): 3,295.1 Mkt Cap (Rs bn): 904.3 Networth (Rs bn)[c]: 210.6 52 week H-L (Rs): 3,417.5 – 2,581.2 Current P/E(x)[c]: 39.5 Current P/B (x)[c]: 4.3

Previous Advisory UltraTech AGM – 28 Aug 2015 UltraTech CCM – 8 Jun 2015

Price Performance in the last 5 years

[c] - consolidated

Financial performance (consolidated) (Rs.bn)

Period ending 31-Mar 2014 2015 2016

Total Income 219.7 246.9 257.7

EBITDA 43.6 47.8 51.1

EBITDA Margin (%) 19.8 19.3 19.8

PBT 28.6 29.9 31.8

PBT Margin (%) 13.0 12.1 12.3

PAT 22.1 21.0 22.9

PAT Margin (%) 10.0 8.5 8.9

EPS (Rs.) 80.5 76.5 83.3

ROANW (%) 12.8 11.0 10.9

ROACE (%) 13.1 12.4 12.0

Debt/EBITDA (x) 1.7 2.1 2.0

Trend in Shareholding Pattern (%) As on Promoter1 DII FII Others

31-Mar-16 62.5 7.0 19.0 11.5

31-Dec-15 62.7 7.4 18.1 11.8

30-Sep-15 61.7 7.1 18.4 12.8

30-Jun-15 61.7 6.8 18.5 13.0

31-Mar-15 61.7 5.9 19.3 13.1

31-Mar-14 61.7 4.9 21.0 12.4

31-Mar-13 62.0 4.6 20.6 12.8

31-Mar-12 63.3 5.5 17.7 13.5

[1] Pledged Shares: Nil

Top Public Shareholders on 31 March 2016

No. Name of the Shareholder Shares

held (million) Holding

as % of total

1 Life Insurance Corporation of India 5.10 1.86

2 Oppenheimer Developing Markets Fund 3.88 1.41

3 Aberdeen Global-Emerging Markets Equity Fund 2.73 1.00

4 Aberdeen Emerging Markets Fund 2.47 0.90

5 Pilani Investment and Industries Corporation Ltd. 2.46 0.90

6 Stichting Depositary APG Emerging Markets Equity Pool 1.64 0.60

7 Aberdeen Emerging Markets Equity Fund 1.30 0.47

8 Franklin Templeton Investment Funds 1.21 0.44

9 General Insurance Corporation of India 1.14 0.42

10 J P Morgan SICAV Investment Company (Mauritius) Limited 1.10 0.40

11 Aberdeen Global Indian Equity Limited 0.75 0.27

12 HDFC Standard Life Insurance Company Limited 0.65 0.24

Total 24.44 8.91

84.5%

244.7%

46.6% 52.7% 48.5% 56.2%

3YR 5YR

Ultratech Cement

S&P BSE 100

NIFTY 100

http://iias.in/downloads/IIASreports/UltratechCementLtd-AGM-28Aug15-IiASVRecommendations_20150814162226.pdf

http://iias.in/downloads/IIASreports/UltratechCementLtd-CCM-8Jun15-IiASVRecommendations_20150519144746.pdf

Voting Advisory


Category: Accounts

Resolution 1: Adoption of Financial Statements

IiAS believes that a comprehensive review of the financials of a company is a critical exercise which often requires first-hand information and proper due diligence. IiAS does not provide voting recommendations on resolutions for adoption of accounts, given the limited time between receipt of the annual report and the shareholder meeting, but provides analysis of critical ratios.

Standalone vs Consolidated (Amounts in Rs.bn) Revenue by Segment

Inner ring: FY15 Outer ring: FY16

Risk Indicators Leverage Profile

For the year ended 31-Mar 2014 2015 2016

CFO/EBITDA (x) 0.8 0.9 0.9

Exceptional items/total income (%) 0.0 0.0 0.0

Interest/Average Debt (%) 4.9 6.8 5.6

Contingent liabilities/networth (%) 16.8 18.2 18.2

Receivables Days 25 22 25

Major Related Party Transactions (RPT) (Rs.bn)

As at 31-Mar 2015 2016 Assessment/Details

Corporate Guarantees Outstanding

30.5 16.6

To UltraTech Cement

Middle East Investments

and its subsidiaries

Corporate Social Responsibility (CSR) Particulars Rs. bn % (PAT)

Average 3-yr profits 28.9 -

Prescribed CSR expenditure 0.6 2.0

Actual CSR expenditure 0.5 1.8

Liquidity As on 31-Mar-2016 Rs.bn

Current Investments 20.3

Cash flow from operations 45.0

Cash and cash equivalents 22.7

Audit Integrity Parameter Result

Name of Auditor BSR & Co LLP/Khimji

Kunverji & Co

Audit Network KPMG/-

Tenure of auditor (yrs)1 1/-

Tenure of audit partner (yrs) 1/- [1] Audit network Tenure

246.9 21.0 380.6

10.8 1.9 27.0

0%

20%

40%

60%

80%

100%

Revenues Profits Assets

Standalone Subsidiaries

99%

1%

99%

1%

Domestic

Export

0.0

0.5

1.0

1.5

2.0

2.5

0.0

20.0

40.0

60.0

80.0

100.0

120.0

31-Mar-14 31-Mar-15 31-Mar-16

Borrowings Debt/EBIDTA Debt/Equity

Rs bn Ratios

Voting Advisory


Category: Dividend

# Type Description of resolution IiAS

Recommendation Indicators See Legend

2 O Declaration of dividend of Rs.9.5 per share (Face Value: Rs.10) FOR

IiAS Assessment Parameters for Dividend Payout

Assessment Parameters Comment Details

Is growth in dividend higher than growth in profits? No Refer Table 1

Does the company have a stated dividend policy? No

Does the company have room to pay a higher dividend? No

Discussion

The company has proposed a final dividend of Rs.9.5 per equity share of face value Rs. 10 for the year ended 31 March 2016. The total dividend outflow including dividend tax for the year is ~Rs.3.1 bn. The dividend payout ratio for the year is ~13.7%. The company has increased the dividend by Rs. 0.5 per share over the previous years. Table 1: Key ratios

Particulars – Period ended 31-Mar 2014 2015 2016

Dividend per share (Rs) 9.0 9.0 9.5

Profit after tax (Rs bn) 22.1 21.0 22.9

Profit growth y-o-y (%) (17.6) (4.9) 9.0

Total dividend (including tax on dividend) (Rs bn) 2.9 3.0 3.1

Dividend growth y-o-y (%) 0.0 2.9 5.6

Payout Ratio (%) 13.1 14.2 13.7

IiAS recommends voting FOR the resolution.

Voting Advisory


Category: Board Appointments



3 O Re-appoint Mrs. Rajashree Birla as Non-Executive Non-Independent Director

AGAINST G M R S T V

7 O Appoint KK Maheshwari as Executive Director FOR 9 O Appoint Ms. Alka Bharucha as Independent Director for five years FOR

10 O Appoint Atul Daga as Executive Director FOR

Table 2: Board Composition and Board Meeting Attendance

Sl. No.

Name of director

Occupation Age Tenure

% of board

meetings attended

Other director

ships

FY16 Compensation

(Rs.mn)

IiAS Recommendation

Executive

1 KK Maheshwari Managing Director

61 <1 NA 1 80.5[1] FOR

2 Atul Daga Executive Director and CFO

50 <1 NA 1 14.6 FOR

Non-executive Non-Independent

3 Kumar Mangalam Birla (P)

Chairman 49 12 71 8 190.7

4 Mrs. Rajashree Birla (P)

Director, Grasim Industries Ltd

71 12 29 7 10.7 AGAINST

5 OP Puranmalka Fmr MD, UltraTech Cement Ltd

64 5 100 1 91.3

6 Rajiv Dube

Chairman, Aditya Birla Science & Technology Ltd

54 3 86 1 0.4

7 DD Rathi

Fmr CFO, Grasim Industries Ltd

69 11 100 Nil 0.5

8 RC Bhargava[2] Chairman, Maruti Suzuki

82 11 100 7 3.8

9 GM Dave[2]

Senior Partner, Dave & Girish & Company

78 10 100 4 2.9

Non-executive Independent

10 Arun Adhikari

Fmr MD, Home & Personal Care, HLL

62 2 71 Nil 1.4

11 SB Mathur

Fmr Chairman, IDFC Trustee Co Ltd

72 7 71 8 1.4

Voting Advisory


Sl. No.

Name of director

Occupation Age Tenure

% of board

meetings attended

Other director

ships

FY16 Compensation

(Rs.mn)

IiAS Recommendation

12 Ms. Sukanya Kripalu

Director, Sukanya Consulting

56 1 100 2 1.6

13 Ms. Renuka Ramnath

Founder, Multiples

55 1 43 8 1.0

14 Ms. Alka Bharucha

Partner, Bharucha & Partners

59 <1 NA 4 0.0 FOR

Seeking reappointment Seeking appointment (P): Promoter [1] KK Maheshwari was the MD of Grasim Industries, an Aditya Birla Group company till being appointed as CEO of UltraTech Cement effective FY17. The remuneration of Rs. 80.5 mn is the FY15 remuneration (latest available) received from Grasim Industries. [2] Independent as per company classification. Due to their tenure over 10 years, IiAS considers them as non-independent.

Table 3: Committee Composition1

Name of Committee

No of directors

Chairman % of

independence Compliance Remarks

Audit 3 Non-

Independent 33% Non-Compliant

67% of the committee to be independent including chairman

Nomination and Remuneration

3 Non-

Independent 33% Non-Compliant

50% of the committee to be independent including chairman

Stakeholders’ Relationship

3 Non-

Independent 0% Compliant Chairman should be non-executive

CSR 4 - 0% - -

Risk Management 3 - 0%

[1] as per IiAS Classification

Shareholders should note that Kumar Mangalam Birla is a member of the remuneration and nomination committee.

IiAS Assessment Parameters for Board Appointments

Assessment Parameter Comment Regulatory Requirement

Is the chairman of the board an independent director? No

Is there a separation in the roles between the Chairman and CEO? Yes Recommended separate director

Proportion of independent directors on the board[1] 36% 50%

Proportion of non-executive directors on the board 86%

Is there at least one woman director on the board? Yes At least one

Does the company have a policy on the retirement age of directors? No

[1] As per IiAS classification

Discussion UltraTech’s board consists of two executive and twelve non-executive directors. The company classifies seven of the directors as independent, however we do not consider RC Bhargava and GM Dave as Independent due to their tenure on the board exceeding over 10 years. Consequently, the board only has five independent directors. The board is not in compliance with SEBI’s LODR, which states that 50% of the directors should be independent if the Chairman is part of the promoter family. IiAS expects the company to appoint additional independent directors in order to ensure that the board composition is in line with the norms.

Voting Advisory


Box 1: IiAS policy snapshot – minimum number of independent directors Chapter IV, Regulation 17(1) of the SEBI Listing Obligations and Disclosure Requirements (LODR), states that for a company with an executive chairman, at least 50% of the board should comprise independent directors. In the case of a company with a non-executive chairman, at least one-third of the board should be independent. However, if non-executive chairman is a promoter, 50% of the directors have to be independent.

Box 2: IiAS policy snapshot – tenure for independent directors

IiAS has observed that some directors are independent as per law, but not in spirit. Their proximity to the promoter/management may impede their ability to provide an independent perspective. Accordingly, IiAS will not treat the following directors as independent:

i. Those who do not satisfy the eligibility criteria laid down in Section 149(6) of the Act and Chapter IV, Regulation 16(1)(b) and Regulation 25 of the SEBI Listing Obligations and Disclosure Requirements (LODR).

ii. Directors who have been on the board for more than 10 consecutive years. IiAS makes two important distinctions here: a. Unlike the Act, which computes tenure beginning 1 April 2014, IiAS will compute tenure on a retrospective basis. b. IiAS will apply the 'visa rule' and classify directors, whose reappointment is within six months of completing 10 years

on the board, as non-independent. iii. Directors who have been on the board of the parent/holding company for more than 10 consecutive years. iv. Directors who are simultaneously on the board of a large number of group companies, with a prolonged tenure of >10

years in any of these companies. Representatives of large shareholders (holding >2% stake) or lenders, even if they are not appointed on the board as a nominee. However, former employees of such shareholders may continue to remain on the Board even after they move on from their employment: these directors can be considered as independent. Similarly, directors who were earlier on the board as nominees can be considered independent once the investor has sold its stake.

Director Profile

KK Maheshwari (DIN: 00017572)

Qualification Chartered Accountant

Work experience

Managing Director, UltraTech Cement Ltd

38 years of experience

Multiple positions within the Aditya Birla Group

Other directorships Grasim Industries Ltd

Atul Daga (DIN: 06416619)


Work experience Executive Director and CFO, UltraTech Cement Ltd


Other directorships Dakshin Cements Ltd

Ms. Alka Bharucha (DIN: 00114067)


Work experience Executive Director and CFO, UltraTech Cement Ltd


Other directorships

Aditya Birla Finance Ltd

Birla Sun Life Asset Management Co Ltd

Honda Cars India Ltd

Honda Siel Power Products Ltd

We recommend voting FOR the appointment of KK Maheshwari, Atul Daga and Ms. Alka Bharucha as Directors.

Voting Advisory


Attendance Mrs. Rajashree Birla has attended 29% of the board meetings held in FY16, and 45% of the board meetings held over the past three years. While IiAS recognizes Mrs. Rajashree Birla plays an important role in the Birla group companies towards their CSR agenda and is a respected personality in the field of social development, we expect directors to take their responsibilities seriously and attend all board meetings. We have a 75% threshold over a three-year period, while approving a director’s re-appointment. We therefore recommend voting AGAINST her re-appointment.

Renuka Ramnath, SB Mathur, Arun Adhikari and Kumar Mangalam Birla also have attendance levels below 75% in the FY16. We expect them to attend all board meetings going forward. We may vote against their re-appointment in the future if attendance levels do not improve. Their attendance over the last three years is below.

Table 4: Attendance in board meetings

Name Renuka

Ramnath SB Mathur Arun Adhikari Kumar

Mangalam Birla

Mrs. Rajashree

Birla

FY16 3/7 (43%) 5/7 (71%) 5/7 (71%) 5/7 (71%) 2/7 (29%)

FY15 2/7 (29%) 6/7 (86%) 6/7 (86%) 6/7 (86%) 4/7 (57%)

FY14 - 5/6 (83%) 1/1 (100%) 4/6 (67%) 3/6 (50%)

Average attendance for last three years

5/14 (36%) 16/20 (80%) 12/15 (80%) 15/20 (75%) 9/20 (45%)

Voting Advisory


Category: Auditors



4 O Ratify the appointment of BSR & Co LLP as joint statutory auditors for one year

FOR

IiAS Assessment Parameters for Auditor Appointment

Parameter Comment Details

Is the tenure of the auditor firm more than 10 consecutive years? No

Has the audit partner been rotated in the last five years? NA

Is the auditor remuneration commensurate with increase in size? Yes

Discussion UltraTech proposes to ratify the appointment of BSR & Co LLP as its joint statutory auditors for one year. BSR & Co LLP were appointed as joint statutory auditors in the FY15 AGM for a period of five years; they replaced the company’s previous joint statutory auditors Deloitte Haskins & Sells.

IiAS’ voting policy on auditor rotation recommends that auditors must be rotated at least once every 10 years in order to maintain the independence of the auditor and the overall objectivity of the audit process. Moreover, under section 139 of the Companies Act 2013 (See Box 3 below), an audit firm’s tenure may extend to a maximum of two consecutive terms of five years each (maximum 10 years). Since the auditor’s tenure is less than 10 years, IiAS recommends voting FOR the resolution.

Box 3: Regulatory snapshot: Auditor appointment under section 139 of the Companies Act 2013

Approval Process: Section 139 of the Companies Act 2013 states that every company shall appoint an auditor for an initial term of five years. The appointment must be ratified by shareholders at every annual general meeting of the company by passing an ordinary resolution.

Auditor Rotation: The Act requires mandatory rotation of individual auditors in every 5 years and of the audit firm in every 10 years (after two terms of 5 years each) in listed companies. A cooling-off period of five years after the stipulated threshold is required to be considered eligible for re-appointment.

Eligibility: For the purpose of rotation, the incoming auditor or audit firm shall not be eligible if they are part of the same audit network (which includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control) as the outgoing auditor or audit firm. Further, if a partner, who is in charge of an audit firm and certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.

Applicability: In the rules notified recently by the Ministry of Corporate Affairs (MCA), it has been clarified that section 139 will be applicable on a retrospective basis - which means the existing term of the current auditors will be taken into account for computing the overall tenure.

Commencement: Companies will have to comply with the requirements within three years from the date of commencement of the Act.

Voting Advisory


Category: Auditors



5 O Appoint Khimji Kunverji & Co as joint statutory auditors for a period of five years

FOR G M R S T V

IiAS Assessment Parameters for Auditor Appointment

Parameter Comment Details

Is the tenure of the auditor firm more than 10 consecutive years? No

Has the audit partner been rotated in the last five years? NA

Is the auditor remuneration commensurate with increase in size? Yes

Discussion Ultratech proposes to appoint Khimji Kunverji & Co as its joint statutory auditors for a period of five years, subject to ratification every year, in place of the company’s previous joint statutory auditors G P Kapadia & Co.

Shareholders should note that Khimji Kunverji & Co have been the auditors for Aditya Birla Nuvo Ltd, a group company, for over 15 years. We flag this as a governance risk. However, shareholders can take comfort in the fact that they are joint auditors – BSR & Co have been appointed as joint auditors in the FY15 AGM for a period of five years. As a result, we expect the firm’s proximity to the Birla group to not impede the overall objectivity of the audit process. We therefore, recommend voting FOR the resolution.

Box 4: Regulatory snapshot: Auditor appointment under section 139 of the Companies Act 2013

Approval Process: Section 139 of the Companies Act 2013 states that every company shall appoint an auditor for an initial term of five years. The appointment must be ratified by shareholders at every annual general meeting of the company by passing an ordinary resolution.

Auditor Rotation: The Act requires mandatory rotation of individual auditors in every 5 years and of the audit firm in every 10 years (after two terms of 5 years each) in listed companies. A cooling-off period of five years after the stipulated threshold is required to be considered eligible for re-appointment.

Eligibility: For the purpose of rotation, the incoming auditor or audit firm shall not be eligible if they are part of the same audit network (which includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control) as the outgoing auditor or audit firm. Further, if a partner, who is in charge of an audit firm and certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.

Applicability: In the rules notified recently by the Ministry of Corporate Affairs (MCA), it has been clarified that section 139 will be applicable on a retrospective basis - which means the existing term of the current auditors will be taken into account for computing the overall tenure.

Commencement: Companies will have to comply with the requirements within three years from the date of commencement of the Act.

Voting Advisory


Category: Cost Auditors



6 O Approve remuneration payable to NI Mehta & Co and ND Birla & Co as cost auditors of the company for FY17

FOR

Discussion As per section 148 of the Companies Act 2013, read with the Companies (Cost Audit Report) Rules, 2013, companies engaged in the production or processing of goods and services (in specified sectors) and having a networth of more than Rs.50 mn or a turnover of more than Rs.1 bn will need to undergo a cost audit. The board has approved the appointment of NI Mehta & Co and ND Birla & Co as cost auditors for the year ended 31 March 2017 on a total remuneration of Rs 0.8 mn and Rs 0.9 mn respectively plus applicable taxes and out-of-pocket expenses. The total remuneration proposed to be paid to the cost auditors in FY17 is reasonable compared to the size and scale of operations. IiAS recommends voting FOR the resolution.

Voting Advisory


Category: Remuneration



8 O Appoint KK Maheshwari as Managing Director for four years and fix his remuneration

FOR

Discussion IiAS Assessment - Managerial Remuneration

Assessment Parameter Comment Details

Is the remuneration for promoter? No

Is the current remuneration higher than peers? No

Is the proposed remuneration in line with industry peers? Yes Refer Table 5

Is there a significant hike in remuneration from previous term/year? NA

Is the remuneration commensurate with the growth in profits/operations? NA

Is the proposed resolution open-ended? No

Does the person have the requisite qualifications? Yes

Discussion KK Maheshwari, 61, was appointed as the Managing Director of UltraTech Cement with effect from 1 April 2016. He is a Chartered Accountant and has been associated with the Aditya Birla Group for over three decades.

The company proposes to fix his remuneration for a period of four years with effect from 1 April 2016.

Table 4: Details of remuneration structure of KK Maheshwari

Component

Proposed Remuneration

(Rs mn)

Remarks/ Assumptions

Basic salary 20.9 Rs 1.7 mn per month with increments within the limit of Rs 3.5 mn per month

Special allowance 25.9 Rs 2.2 mn per month with increments within the limit of Rs 4.5 mn per month

HRA 10.5 Assuming 50% of basic salary

Retiral benefits 6.5 -As per rules of the company -Assuming 31% of basic salary

Performance-linked incentives

49.0[1] -Maximum Rs 70 mn -Assuming 70% of maximum as per Former MD’s ratio in FY16

Total 112.7[2] Maximum remuneration can be upto Rs. 200.0 mn [1] IiAS estimated FY17 remuneration excluding ESOPs

The former MD of UltraTech, OP Puranmalka was paid remuneration of Rs. 91.3 mn in FY16.

Table 5: Remuneration of peers (latest available data) Sr. No.

Company Name

Name of Director

Designation Total Remuneration

(Rs mn) Total income

(Rs bn) PAT

(Rs bn)

1 Ambuja Cements

Ajay Kapur MD 63.5 98.3 8.1

2 Shree Cement H M Bangur MD 262.5 67.6 4.3

3 Bajaj Auto Rajiv Bajaj MD 204.9 222.0 30.2

4 Cipla Ltd Subhanu Saxena MD 133.1 115.1 11.8

5 UltraTech Cement

KK Maheshwari MD 112.71 257.7 22.9

Source: IiAS research, company filings, comPAYre (IiAS proprietary tool)

Voting Advisory


KK Maheshwari’s remuneration is commensurate with the size and performance of the company. His proposed remuneration is comparable to peers in similar-sized companies and in the industry. IiAS recommends voting FOR the resolution.

Voting Advisory


Category: Remuneration



11 O Appoint Atul Daga as Executive Director and CFO for five years and fix his remuneration

FOR

Discussion IiAS Assessment - Managerial Remuneration

Assessment Parameter Comment Details

Is the remuneration for promoter? No

Is the current remuneration higher than peers? No

Is the proposed remuneration in line with industry peers? Yes Refer Table 7

Is there a significant hike in remuneration from previous term/year? NA

Is the remuneration commensurate with the growth in profits/operations? NA

Is the proposed resolution open-ended? No

Does the person have the requisite qualifications? Yes

Discussion Atul Daga, 50, was appointed as Executive Director and CFO of UltraTech Cement with effect from 9 June 2016. He is a Chartered Accountant by profession and has been associated with the Aditya Birla Group for over two decades. He has been the CFO of the company since 2010.

The company proposes to fix his remuneration for a period of five years with effect from 9 June 2016.

Table 6: Details of remuneration structure of Atul Daga

Component Proposed

Remuneration (Rs mn)

Remarks/ Assumptions

Basic salary 4.5 Rs 0.4 mn per month with increments within the limit of Rs 0.8 mn per month

Special allowance 25.9 Rs 0.5 mn per month with increments within the limit of Rs 1.0 mn per month

HRA 2.3 Assuming 50% of basic salary

Retiral benefits 1.4 -As per rules of the company -Assuming 31% of basic salary

Performance-linked incentives

6.0[1] -Maximum Rs 8.5 mn -Assuming 70% of maximum as per Former MD’s ratio in FY16

Total 19.6[2] Maximum remuneration can be upto Rs. 36.8 mn [1] IiAS estimated FY17 remuneration excluding ESOPs

Table 7: Remuneration of peers (latest available data) Sr. No.

Company Name

Name of Director

Designation Total Remuneration

(Rs mn) Total income

(Rs bn) PAT

(Rs bn)

1 Dalmia Bharat Jayesh Doshi ED & Group CFO 17.6 50.8 0.0

2 Shree Cement Prashant Bangur ED 95.0 67.6 4.3

3 Cipla Ltd Rajesh Garg CFO 49.8 115.1 11.8

4 UltraTech Cement

Atul Daga ED & CFO 19.61 257.7 22.9

Source: IiAS research, company filings, comPAYre (IiAS proprietary tool)

Atul Daga’s remuneration is commensurate with the size and performance of the company. His proposed remuneration is comparable to peers in similar-sized companies and in the industry. IiAS recommends voting FOR the resolution.

Voting Advisory


Category: Borrowings



12 S Approve private placement of secured non-convertible debentures of up to Rs.90 bn

FOR

Discussion The company seeks shareholder’s approval for an aggregate long-term borrowing upto Rs.90 bn through issue of secured redeemable non-convertible debentures (NCDs) on private placement basis in one or more tranches. The NCDs which are proposed to be issued will be within the overall borrowing limits of the company. UltraTech’s outstanding ratings are CRISIL AAA/Rating Watch with Developing Implications/CRISIL A1+. IiAS recommends voting FOR the resolution.

Voting Advisory


Category: Borrowings



13 S Approve borrowing limits of up to Rs 60 bn over and above the paid up capital and free reserves

FOR

14 S Create charges/mortgages on assets of the company FOR

Discussion In September 2014, the company had received shareholder approval for a borrowing limit of Rs. 20 bn over and above the paid-up capital and free reserves of the company. The company is now seeking approval for a limit of Rs. 60 bn over and above the paid-up capital and free reserves of the company. Table 8: Capital structure and proposed borrowing limit of UltraTech (as on 31 March 2016)

Parameter Amount (Rs. bn)

Paid-up Capital (a) 2.7

Free Reserves (b) 201.2

Sum of paid up capital and free reserve (a+b) 204.0

Proposed Borrowing limit 264.0

Present Borrowing of the company (including current maturities) 76.6

Table 9: Debt data

As on / For the year ended Standalone Consolidated

31-Mar-14 31-Mar-15 31-Mar-16 31-Mar-14 31-Mar-15 31-Mar-16

Total Debt (Rs bn) 52.0 74.1 76.6 73.3 98.3 100.3

Networth (Rs bn) 171.0 188.6 207.4 171.8 190.4 210.6

EBITDA (Rs bn) 41.5 45.7 48.5 43.6 47.8 51.1

Total Debt/ EBITDA (x) 1.3 1.6 1.6 1.7 2.1 2.0

Total Debt/ Equity (x) 0.3 0.4 0.4 0.4 0.5 0.5

As on 31 March 2016, UltraTech’s standalone borrowing and net worth were Rs.76.6 bn and Rs.207.4 bn respectively. The company’s proposed borrowing limit is Rs.264.0 bn. The company has clarified to IiAS that the increase in limits has been sought because the company is expected to takeover additional debt of ~Rs. 130 bn on acquiring some cements assets of Jaiprakash Associates.

UltraTech has maintained low debt levels in the past – the consolidated debt to equity and debt to EBITDA ratios as of 31 March 2016 were 0.5x and 2.0x respectively. While the proposed acquisition will strengthen Ultratech’s business profile, it will have a material impact on the company’s credit protection metrics. UltraTech’s outstanding ratings are CRISIL AAA/Rating Watch with Developing Implications/CRISIL A1+. Box 5: Regulation snapshot: Section 180(1) of Companies Act, 2013

IiAS expects the company to remain judicious in raising incremental debt and maintain its leverage policy. Further, it needs headroom to accommodate the additional debt on takeover of some cement assets of Jaiprakash Associates. Therefore, IiAS recommends voting FOR the resolution. With regard to resolution 14, IiAS notes that secured loans generally have easier repayment terms, less restrictive covenants, and lower interest rates. IiAS recommends voting FOR the resolution.

The board of the directors of a public company shall not borrow moneys, together with the moneys already borrowed by the company (apart from temporary loans obtained from the company’s bankers in the ordinary course of business), in excess of the aggregate of the paid up capital and free reserves of the company unless it is approved by the shareholders.

Voting Advisory


Category: Issue of Securities



15 S Increase Foreign Institutional Investor (FII) holding limit from 24% to 30%

FOR

Discussion The current foreign holding (as on 31 March 2016) in UltraTech Cement is ~19.0%. As per the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, FIIs can acquire and hold (on their own account and on behalf of their SEBI approved sub-accounts together), up to an aggregate limit of 24% of the paid up share capital of an Indian company.

Given that the FII shareholding has seen an increasing trend in the last few years (from 12.9% as on 31 March 2011 to 19.0% as on 31 March 2016), the company is proposing to increase the FII holding limit from 24% to 30% of its paid-up equity share capital.

The increase will enable FIIs to further invest in the company.

IiAS recommends voting FOR the resolution.

Voting Advisory


Legend

IiAS publishes voting recommendations on shareholder resolutions. These recommendations are non-binding in nature. Investors may have their own voting parameters which may, on aspects, differ from those of IiAS. On such occasions, investors should use these recommendations as a guiding tool. The data and regulations reviewed while arriving at a recommendation are disclosed to the investors. This gives the investor clarity regarding the basis for our recommendations. Please note that voting recommendations do not constitute advice to buy, sell or hold securities.

Indicator Meaning Description Common Examples

Governance Issue

This symbol is used for resolutions which indicate poor corporate governance practices or non-compliance with the regulatory provisions. Consequently, they are usually accompanied with an AGAINST recommendation. IiAS may also include measures/best practices which the company can adopt to improve its governance record.

Managerial remuneration, Auditor appointments

Minority shareholder impact

This symbol is used for resolutions which negatively affect the minority shareholders of the company. IiAS usually recommends voting AGAINST such resolutions as they benefit the controlling or a class of shareholders at the expense of others.

Preferential warrants, Differential rights

Moderate - High Risk

This symbol is used for operating decisions taken by the company management and IiAS will usually recommend voting FOR such resolutions. However, they carry an element of risk which may subsequently have a negative impact on the financials. Investors are therefore advised to review the risk factors highlighted by IiAS in its analysis before voting.

Any resolution

Strategic

Indicates a strategic decision of the company, the long term impact of which cannot be accurately ascertained at the time of proposal. These may be accompanied with a FOR or AGAINST recommendation based on a preliminary review of data provided to investors. IiAS recommendations on such strategic decisions are dependent primarily on short-term indicators like market reaction, analyst opinions, valuation impact, etc. Investors may choose to support a resolution in expectation of higher returns.

Mergers, Amalgamations, Hive-offs, Entering new lines of business

Transparency Issue

Indicates lack of adequate information. Even though IiAS provides both FOR and AGAINST recommendations on such resolutions (based on available data), investors are advised to seek further clarifications from the company. Investors should take into account any additional information received from the company before voting.

Any resolution

Valuation

Refers to a valuation impact on the company’s financials. These resolutions are likely to impact the company’s margins and long term profitability. IiAS typically will recommend voting AGAINST such a resolution. Investors are advised to critically review the company’s proposal in such cases. However, they may choose to support a resolution in expectation of higher returns.

Increase in borrowings. Related party transactions, Excessive dilution

G

M

S

V

T

R

Voting Advisory


Disclaimer This document has been prepared by Institutional Investor Advisory Services India Limited (IiAS). The information contained herein is solely from publicly available data, but we do not represent that it is accurate or complete and it should not be relied on as such. IiAS shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not be taken as the basis for any voting or investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of the individual resolutions referred to in this document (including the merits and risks involved). The discussions or views expressed may not be suitable for all investors. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. IiAS reserves the right to make modifications and alterations to this statement as may be required from time to time. However, IiAS is under no obligation to update or keep the information current. Nevertheless, IiAS is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither IiAS nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report.

Confidentiality This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IiAS to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information provided in these reports remains, unless otherwise stated, the copyright of IiAS. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of IiAS and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

IiAS Voting Policy IiAS' voting recommendations are based on a set of guiding principles, which incorporate the basic tenets of the legal framework along with the best practices followed by some of the better governed companies. These policies clearly list out the rationale and evaluation parameters which are taken into consideration while finalizing the recommendations. The detailed IiAS Voting Guidelines are available at www.iias.in/IiAS-voting-guidelines.aspx. The draft report prepared by the analyst is referred to an internal Review and Oversight Committee (ROC), which is responsible for ensuring consistency in voting recommendations, alignment of recommendations to the IiAS’ voting criteria and setting and maintaining quality standards of IiAS’ proxy reports. Details regarding the functioning and composition of the ROC committee are available at www.iias.in. In undertaking its activities, IiAS relies on information available in the public domain i.e. information that is available to public shareholders. However, in order to provide a more meaningful analysis, IiAS, generally seeks clarifications from the subject company. IiAS reserves the right to share the information provided by the subject company in its reports. Further details on IiAS policy on communication with subject companies are available at www.iias.in.

Analyst Certification The research analyst(s) for this report certify/ies that no part of his/her/their compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. IiAS’ internal policies and control procedures governing the dealing and trading in securities by employees are available at www.iias.in.

Conflict Management IiAS and its research analysts may hold a nominal number of shares in the companies IiAS covers (including the subject company), as on the date of this report. A list of IiAS’ shareholding in companies is available at www.iias.in. However, IiAS, the research analyst(s) responsible for this report, and their associates or relatives, do not have actual/beneficial ownership of one per cent. or more securities of the subject company, at the end of the month immediately preceding the date of publication of this report. A list of shareholders of IiAS as of the date of this report is available at www.iias.in. However, the preparation of this report is monitored by an internal Review and Oversight Committee (ROC) of IiAS and is not subject to the control of any company to which such report may relate and which may be a shareholder of IiAS.

http://www.iias.in/IiAS-voting-guidelines.aspx

http://www.iias.in/IiAS-ROC

http://www.iias.in/

http://www.iias.in/

http://www.iias.in/

http://www.iias.in/

Voting Advisory


Other Disclosures IiAS further confirms that, save as otherwise set out above or disclosed on IiAS’ website (www.iias.in): IiAS, the research analyst(s) responsible for this report, and their associates or relatives, do not have any financial interest in the subject

company. IiAS, the research analyst(s) responsible for this report, and their associates or relatives, do not have any other material conflict of interest

at the time of publication of this report. As a proxy advisory firm, IiAS provides subscription, databased and other related services to various Indian and international customers

(which could include the subject company). IiAS generally receives between INR 10,000 and INR 25,00,000 for such services from its customers. Other than compensation that it may have received for providing such services to the subject company in the ordinary course, none of IiAS, the research analyst(s) responsible for this report, and their associates or relatives, has received any compensation from the subject company or any third party for this report.

None of IiAS, the research analyst(s) responsible for this report, and their associates or relatives, has received any compensation from the subject company or any third party in the past 12 months in connection with the provision of services of products (including investment banking or merchant banking or brokerage services or any other products and services), or managed or co-managed public offering of securities of the subject company.

The research analyst(s) responsible for this report has not served as an officer, director or employee of the subject company. None of IiAS or the research analyst(s) responsible for this report has been engaged in market making activity for the subject company. Ms. Renuka Ramnath, who is an Independent Director on the board of UltraTech Cement Limited, is also an Independent director on the

board of IiAS.

Ultratech Cement Limitediias.in/downloads/IIASreports/F1.0 UltratechCementLtd-AGM-19Jul16... · 1 O...

Documents

Transcript of Ultratech Cement Limitediias.in/downloads/IIASreports/F1.0 UltratechCementLtd-AGM-19Jul16... · 1 O...