India Inc.’s Laggards And Last-Minute AGMsBloombergQuintOpinion
This is the seventh edition of our study regarding the association between the timing of the annual general meetings of the Nifty 500 companies and their financial performance. Despite Covid-linked disruptions, the trend holds that companies with weak performance wait till the last minute to hold their AGMs. Even with an accommodative regulatory environment that allowed companies to hold their AGMs virtually, those with weaker financial performance preferred to wait till the very end to present their financial results to their investors.
Correlation With Financial Performance
For the seventh straight year, we find that the median return on equity is lowest for companies that hold their AGMs held towards the end of the AGM season.
This trend is even more visible if we exclude the public sector banks: up until FY19, PSBs usually held their AGMs in June and July; in FY20, they held their AGMs over July and August. PSBs return on equity has been declining largely on account of weak asset quality, coupled with some impact of the capital raise to shore up equity and meet RBI’s capital adequacy norms in certain instances.
Once we adjust the data by excluding PSBs, which we have done since 2016, this trend is far more evident.
The returns are subdued as many more loss-making companies push back holding their AGM. This is corroborated by the fact that in FY20, of the 49 Nifty 500 companies that reported losses, 57% of them held their AGMs between September- December. Data since 2014 is shown below.
The 2020 AGM Season
As in our earlier analysis, August and September continue to see the largest concentration of AGMs for companies with March year-ends.
For 2019-20, around 75% of the Nifty 500 companies with March year-ends held their AGMs in either August or September, significantly higher than 66% in FY19. This shift can be attributed to the Covid-19 pandemic leading to significant delays in holding AGMs on account of late closing of accounts and operational issues around the publishing of the annual accounts and reports. Given the Covid-19 pandemic, the Ministry of Corporate Affairs had approved a three-month extension of the deadline for holding FY20 AGMs to Dec. 31, 2020, from Sept. 30, 2020.
Of the Nifty 500 companies, only fifteen availed this extension, with three companies holding their AGMs in October and twelve in December.
The data hides the full extent of the concentration. Approximately 33% of all AGMs for these 500 companies were held in the last two weeks of September, as can be seen in the next chart.
The monthly skew is even greater if one expands the number of companies.
The following table shows the AGM count for companies under IiAS’ coverage list (in mid-August 2020). The data shows that as one adds mid-sized and smaller companies to the dataset, the concentration in September is even more.
Investors with a large number of equity holdings have had to pick and choose which meetings they wanted to attend. But since a large majority of AGMs were held via two-way video conference, the severity of the problem while mitigated to some extent, was not eliminated. Nonetheless, we welcome virtual AGMs.
Debunking The ‘Large And Complex’ Myth
IiAS continues to contend that the rationale offered by many companies for delaying holding their AGMs of the ‘large size and complex business’ is untenable. To be a part of the Nifty 500, companies will necessarily have to have size and complex structures. Using the median total assets and gross sales as a proxy for complexity, we find that companies with AGMs in June and July are much larger and complex than those with AGMs in August and September. Therefore, size and complexity cannot be a deterrent to holding AGMs sooner.
IiAS acknowledges that disruption caused by Covid-19 has contributed to delays in holding AGMs for many companies. That said, the above conclusions from our earlier studies regarding the linkage between performance of companies and date of AGMs, holds. Historically, larger, better performing and more complex companies have had no difficulty in holding early AGMs. The reverse is often true. The pandemic has done little to dispel our long-standing hypothesis that companies with weak financial performance postpone their AGMs till the last minute.
Institutional Investor Advisory Services is an advisory firm on corporate governance issues and makes voting recommendations on shareholder resolutions. This article was originally published as the firm’s ‘Institutional Eye’ note.
The views expressed here are those of the authors, and do not necessarily represent the views of BloombergQuint or its editorial team.