Minority shareholders of Automotive Axles reject RPT with Meritor – Express Mobility News

The minority shareholders of Automotive Axles, a Kalyani Group company, have rejected the resolution to approve material-related party transactions with Meritor HVS (India) with around 79.47% of the votes against the move and 20.53% in favour.

A proxy advisory report by Stakeholder Empowerment Services (SES) recommended voting against the resolution, citing that there is no adequate data to ascertain whether the collaboration is the best possible course of action. 

Baba N Kalyani, Kenneth James Hogan and BC Prabhakar are the common directors on the boards of both companies. A major portion of the Automotive Axles product sales are directed towards a single customer, Meritor HVS India, which is a related party to the company.

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Automotive Axles said the transaction with Meritor offered the company access to global product and technical know-how, and the associated licences/permits, opening up additional export opportunities. “Approval from shareholders is crucial to prevent disruptions in the customer line and safeguard the current and future business prospects, thereby avoiding any potential loss of reputation in the market. The current structure and the relationship between the company and Meritor have existed for over 21 years,” it said.

However, there is a governance concern, according to SES, as there is no quantifiable data to ascertain what benefits the company and Meritor were receiving through this collaboration. There are transparency concerns about the basis for arm’s length pricing as the company had not provided any context about the methodologies and basis relying upon which the company has arrived at the proposed pricing and there was no clarity on the type of asset included in the proposal and how sale/purchase of assets was in the ordinary course of business.

The transaction entails the sale of axles, brakes, suspension and other related automotive components, including their parts, components, and spares worth Rs 2,450 crore, the purchase of goods, including their parts, components and spares, worth Rs 10 crore and Rs 40 crore for any kind of service, reimbursements received or paid, purchase and sale of products, tools and assets or any other transaction for transfer of resources. Around 80% of the sales of the company are directed through MHVSIL.

According to SES, the MVHSIL website has listed Automotive Axles as its only manufacturing facility, indicating that the latter is a sort of captive manufacturing unit and hence operations and performance of both companies are inter-dependent, SES said.

Meritor HVS (India) is a joint venture company promoted by Meritor Heavy Vehicle Systems LLC, Troy, USA, and Bharat Forge (BFL). MHVSIL is engaged in new product design, application analysis, product testing and marketing of drive axles, non-drive steer axles, drum brakes, and air disc brake assemblies for medium and heavy commercial vehicles, and off-highway and defence applications. The company customises global products to meet rigorous regional requirements, serving major OEMs in India.

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