Sun Pharma's high cash levels draw criticism

Firm says treasury team has done a commendable job

Stakeholders Empowerment Services (SES), a corporate governance advisory entity, has raised concern over the efficiency of treasury management at Sun Pharmaceutical Industries.

In a report ahead of the company’s annual general meeting on Saturday, it pointed to an instance where a subsidiary raised Rs 1,000 crore via non-convertible debentures (NCDs) while the cash position had also risen at the parent.

How else, it has asked, is one to explain total cash and cash equivalents in the year ended March 2016 being Rs 13,989 crore, up Rs 2,991 crore from a year earlier, while total borrowing rose Rs 722 crore in the same period? It was the previous year, too — cash rose from Rs 7,590 crore as on end-March 2014 to Rs 10,998 crore at end-March 2015, an increase of Rs 3,408 crore, while total borrowing rose Rs 7,467 crore.

Shareholders should note, SES said, that there was continuous increase in cash and cash equivalent, goodwill and intangible assets in the consolidated financial statement. Total profit over four years was Rs 15,380 crore but cash had risen by Rs 13,989 crore, indicating a majority of the profit is idling in the form of cash.

A Sun spokesperson said, “Contrary to what SES is claiming, the treasury team has done a commendable job, by raising resources in the most efficient manner for business purposes. The subsidiary is a 100 per cent subsidiary. Despite this borrowing, overall debt at the consolidated level has reduced, again thanks to the cash-generative nature of our business and efforts of the treasury team.”

SES has also recommended the shareholders vote against four resolutions for reappointment of directors, citing their long tenure. "Subhagmal Mohanchand Dadha, Keki Minoo Mistry, Ashwin Suryakant Dani and Hasmukh Shantilal Shah have been associated with the company for more than 10 years. SES takes into account the tenure of a director prior to the Companies Act, 2013, coming into effect, as the spirit behind the provision of law recognises that long tenure does impact independence.”

SES added it did not consider directors associated with the company for more than 10 years to be independent. Though their appointment was compliant with law, SES considers them as non-independent, it said. In reply, Sun Pharma said: “These are very much Independent Directors (IDs). As per the new Companies Act, 2013, IDs can be elected for two blocks of five years each. Sun Pharma appointed its IDs for two years in the first block. Presently, for the second block, we are seeking re-appointment for two years only.”