Why Are Investors At Daggers Drawn With MapmyIndia?

Share price of geotech company MapmyIndia’s parent CE Info Systems plunged to a new 52-week low of INR 1,535 during the intraday trading on Tuesday (December 3), marking an about 12.5% decline from its closing price of INR 1,753.80 on Friday (November 29). The company’s market capitalisation fell to INR 8,370.79 Cr (about $988.34 Mn) at the end of Tuesday’s trading session. 

Behind this fall in stock price was a series of events, beginning Friday. The company informed the bourses on Friday, after market hours, that its CEO and executive director Rohan Verma will be parting ways from the executive duties to fully focus on building a B2C business as a “a dedicated separate” company. 

CEO Verma will be transitioning from CE Info Systems to take up an executive position in the new company from April 1, 2025. However, he will remain a non-executive director on the board of the geotech company. Moving forth, MapmyIndia said that its CMD Rakesh Kumar Verma will continue to provide leadership to the company. 

In a subsequent press release issued on December 1, MapmyIndia, without exactly saying it, made it clear that it will hive off its B2C business after the incorporation of the new startup. In the press release titled, “MapmyIndia to continue focusing on its core B2B and B2B2C businesses”, the company said that the new venture will use MapmyIndia’s consumer facing map product Mappls. However, MapmyIndia will continue to have access to Mappls for its B2B2C and B2G2C offering.

The new company will operate as an independent entity and bear all expenses related to its business, be it people cost, marketing cost or cloud cost. 

MapmyIndia will acquire a 10% stake in the new entity with an investment of INR 10 Lakh. Further, it will also be subscribing to INR 35 Cr worth of compulsorily convertible debentures (CCDs) of the new company, which will convert to equity either after 10 years or at a 25% discount to any third party valuation of the new company, whichever is earlier. “The future capital requirement will be taken up by the MapmyIndia board at appropriate time,” it said.

MapMyIndia’s departing CEO Rohan Verma will hold the remaining 90% stake in the new venture. 

Investors Cry Foul Over The Hive Off

MapmyIndia held an investor meeting on Monday (December 2) to discuss the latest developments. However, it laid bare the dissatisfaction of investors and analysts with the company’s decisions, with one of the investors going as far as saying that the terms of the separation agreement aren’t fair to MapmyIndia’s minority stakeholders. 

During the call, the CMD said that MapmyIndia consulted many “serious investors, not retail traders” before taking the decision. “All of them said that the company’s quarter-on-quarter (QoQ) performance is what ultimately matters,” he added.

When asked if the move would actually translate to a better financial performance on a QoQ level, he refrained from making a direct comment on the impact on the company’s immediate future. Instead, he said that the company has been facing investor scrutiny over its weak financial performance in the last quarter. 

In the quarter ending September 2024 (Q2 FY25), MapmyIndia’s profit after tax (PAT) declined 15% on a sequential basis to INR 33.09 Cr from INR 35.86 Cr. In Q1 FY25, the decline in PAT was about 6% QoQ.

Explaining the rationale behind the decision to hive off the B2C business after two consecutive quarters of less-than-satisfactory performances, the departing CEO said that MapmyIndia is a B2B company at its core and it lacks the DNA of a B2C business. Thus, while the company spent a significant amount on incubating its B2C arm, it made a dent in its bottom line.

In its investor presentation for Q2 FY25, MapmyIndia said, “Marketing expenses went up by an incremental INR 2.3 Cr and cloud infrastructure costs increased by INR 1.3 Cr QoQ to support consumer brand Mappls reach, resulting in increased downloads to 25 Mn+ Mappls app users at the end of Q2 FY25.”

During the call, the company’s management said that the increase in its marketing expenses was solely to support the growth of the consumer facing business.  

However, proxy advisory firm InGovern Research Services pointed out that MapmyIndia would still invest in the separate new B2C venture while focusing on its core B2B and B2B2C operations. “The potential diversion of capital towards the new venture may impact the company’s operational efficiency and profitability in its primary business areas,” it said.

Further, InGovern also pointed out the significant investment that MapmyIndia would be making in the new entity through CCDs. It questioned the company’s financial risk management plans in case the new entity failed to perform.

Later on Tuesday, MapmyIndia apparently decided to not subscribe to the CCDs. “MapmyIndia’s board approved investment of INR 35 Cr through CCDs… but after hearing the concerns of minority investors, I have decided not to take the investment, and I’ll use my own funds to run this venture,” Rohan Verma told ET.

However, MapmyIndia had not informed the bourses about the development till the time of publishing this story. 

What About Royalties?

The new entity will also inherit Mappls Mall and Travel, which MapmyIndia said is in the incubation stage, and Mappls Gadgets for consumers, marketed through D2C or ecommerce channels. 

The company’s Mappls app, which provides maps, real-time updates with ETA, voice navigation, safety alerts for disturbances like speed breakers, potholes, accident prone areas and 3D photo realistic viewability option, has seen over 10 Mn downloads on the Google Playstore. 

In its investor presentation for Q2 FY25, MapmyIndia said that Mappls became the “No. 1 on App Store in India across all categories” in FY24.

The separation of Mappls into a different entity is perhaps the biggest concern that investors have. During an over hour-long investor call, the primary question that was repeatedly asked to MapmyIndia’s management was the impact the separation would have on the company. 

The company’s management said that the ownership of Mappls will be with the new entity. Hence, while the new company will earn its revenue from Mappls’ products, CE Infosystem will only have access to anonymised data collected by it.   

This irked many investors and analysts who sought to know the reasoning behind this move. Addressing the concerns, Rakesh Verma said that Mappls as a brand itself is not the consumer business of the company today. The app is free to use and will continue to be free in the near foreseeable future, he asserted.

“MapmyIndia has created 25 Mn downloads for Mappls as of today. It is going to them, but MapmyIndia is keeping the full brand usage for five years. I can’t answer what will happen after five years,” he said. 

The outgoing CEO justified the separation by saying that the purpose of Mappls was to showcase and complement MapmyIndia’s core business. Hence, when it is spread out to more customers, it is likely to translate in more revenue for MapmyIndia as the brand gets to showcase its tech to a greater audience. 

He said that this showcase as well as the extra data MapmyIndia will get can actually be seen as the “royalty” for it.

Related Party Transaction Raises Eyebrows

Some investors and a number of people on the internet posed questions on the related party transaction (RPT) and the terms of the deal. 

In a post on X, portfolio management service provider Capitalmind’s CEO Deepak Shenoy said, “Regardless of who’s putting in money to fund a “B2C” business, it’s not good corporate governance to offer a brand, past goodwill and potential future growth of a consumer business to a related party, while taking only 10% stake.”

In its report, InGovern marked the RPT as the biggest red flag. It said that Rohan Verma’s continued presence on the board could influence decisions related to the new B2C entity. It added that his dual role could blur the “lines of governance and accountability” at MapmyIndia.

However, MapmyIndia, in its statement, said that the RTP was considered “carefully” by the board and it is as per the compliance requirement. 

“MapmyIndia founders (Rakesh Verma and Rashmi Verma) will have no part in the new entity. They will be completely focused on building MapmyIndia and have no other interests beyond MapmyIndia and will continue guiding the company towards new growth trajectories without any distractions. While Rohan can concentrate his energies on building the B2C business,” it said. 

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