Havells' selective disclosure to analysts irks investors

This violates corporate-governance norms, say investors

Electrical equipment maker Havells India’s move to selectively disclose its slowing sales growth to analysts has upset shareholders.

On Wednesday, brokerages UBS and Motilal Oswal lowered the company’s revenue growth guidance for 2014-15 to 12-14 per cent from 17-20 per cent, citing weaker than expected demand recovery. This came after their meeting with the company’s management. The analyst reports also pointed to possible pension liabilities in the second half of the financial year, which could affect the company’s reported profit, and currency volatility, which might impact its margins in Latin America. Predictably, the Havells India stock tanked on bourses after a lowering of guidance. On BSE, the scrip declined six per cent on Wednesday and over nine per cent on Thursday; it was trading at Rs 265.75 a share at close on Friday. Before the guidance cut, the shares were trading at Rs 346 apiece.

“This is a breach of corporate governance norms,” said Anupam Maheshwari, a Mumbai-based Havells India investor. “I tried contacting the company to seek an explanation on why it chose to do this selectively. It should have disclosed to the stock exchanges first. The company didn’t even indicate this during its results recently. Why now?”

Havells India said in a statement to stock exchanges on Friday that there had been no event or analyst meet conducted by the company that would have required a disclosure or intimation to stock exchanges under Clause 36 of the Securities & Exchange Board of India’s (Sebi’s) listing agreement. “The company, from time to time, keeps attending investor meets organised by recognised market intermediaries, where discussions about the macro environment of the economy are made in general, and the ground situation assessed. Any discussion or information about the company is in line with publicly available information,” it said.

In response to an email, the company said it had nothing more to share beyond the statement issued to stock exchanges. Havells India Managing Director Anil Rai Gupta had on Thursday indicated in an interaction with a television channel that he was hopeful of achieving an Ebitda (earnings before interest, tax, depreciation and amortisation) margin of 13-13.5 per cent in 2014-15. But the damage now appears to have been done.

Proxy advisory firms InGovern and Stakeholders Empowerment Services (SES) are in agreement with Maheshwari over selective disclosures. “Clause 36 of Sebi’s listing agreement stipulates that companies must make timely disclosure of price-sensitive information to stock exchanges first. By not doing so, the company has violated Sebi norms,” InGovern founder Shriram Subramanian said. “By selectively disclosing information to a group of people, the company is favouring them over others. Obviously, the latter can quickly act with the information they have; this is like insider trading.”

Former executive director of Sebi and managing director of SES, J N Gupta, said: “A few investors contacted me over the Havells development and I asked them to get in touch with Sebi. These things should be avoided and companies should make efforts to be as transparent as possible.”

In March this year, former Infosys chief executive & managing director, S D Shibulal, was seen as having crossed the line when he indicated at an investors’ forum that Infosys’ revenue could be near the lower end of its 2013-14 guidance. He had also said the lower-than-expected growth in the March quarter of 2013-14 could impact the company’s growth the next financial year. He had attributed this to a slowdown faced by clients in certain industries, as well as a mismatch of skills.

The next day, the Infosys stock had fallen 8.5%, prompting proxy advisory firms like InGovern to question such a statement.