FIN F315: FINANCIAL MANAGEMENT

ASSIGNMENT 1
Second Semester 2016-17

Monica Adusumilli (2014A7PS005H)
Akanksha Pandey (2014A7PS151H)
Nimisha Agrawal (2014A8PS437H)
Minna Gupta (2014ABPS737H)

Birla Institute of Technology and Science, Pilani
Hyderabad Campus

Leela Palaces and Resorts Limited. CP Krishnan Nair in Mumbai as The LEELA MUMBAI in the year 1986. composition and shareholding pattern. Consider its board structure. It is an integral part of Leela Group business conglomerate. The main holding company of the hotel group is the Hotel LeelaVenture Limited and is traded on the Bombay Stock Exchange (BSE: 500193) and National Stock Exchange (NSE: HOTELEELA). . Company Chosen: Hotel Leelaventure Limited Background of the Company: The Leela group of hotels. Founded by Capt. belongs to the category of most luxurious and hospitable chains of 5 star hotels in India. and analyse scope of small shareholders’ wealth protection and business value maximization.Assessing effectiveness of corporate board on safeguarding small investors’ interests Aim: Identify a company preferably in India/abroad. the company markets itself under the name .

2011-2012 .Board Structure Analysis The Board of Directors from 2011-2016 are shown below.

2012-13 2013-14 .

2014-15 2015-16 .

. Both his sons. Mr. the ones who attended the least meetings were the independent members.Chairman as well as the Managing Director (MD) of the company. Till 2016. Thus. About 25% of board members each year have been part of the management. Vivek Nair and Mr. Both of them have consistently remained a part of the Board of Directors. when an important decision is to be taken. Board Composition 2016 2015 2014 2013 2012 0% 20% 40% 60% 80% 100% Related Members Unrelated Members The above observations clearly state that the Board of Directors was not a completely independent body as it comprised of several top management executives such as MD.INDEPENDENCY Capt CP Krishnan Nair headed the hotel group till 7th Feb. CFO etc . Moreover. when attendance of board meetings is looked at (2015-16 sample shown below). The composite graph below shows the number of board members who were actually independent vs. top executives such as CFO and Deputy Managing Director were a part of the board. a major portion of the total votes lies in the hands of the management. those related to the management. Dinesh Nair were given the position of Chairman and Co. 2013 after which he resigned and appointed as Chairman Emeritus & Founder Chairman.

. OBSERVATIONS The data taken from annual reports of Leela Hotels over the years 2011-2016 suggest the following: i) Both sons of Capt. The company fails on the following criteria for a good board structure: i) Number of board members <10. excluding independent directors. iii) Executive directors varied over 2-3 in number. having a board strength of >10 is quite ineffective. A significant portion of the board is currently working in the company. Moreover. as shown. CP Nair remained as directors throughout. However. Owing to the above law. the strength of board of Directors varied roughly over the range of 12-18. The company has 12-18 members. non independent directors were 3-5 in number. In accordance with the company retiring laws (Section 152 of Companies Act). iv) Non executive. two-thirds of the board. ii) Independent directors varied from 7-10 in number. should be retiring by rotation. Vivek Nair. as discussed above. Dinesh Nair and two other executive directors are not liable to retire from the board.NUMBER From year 2012-2016. several board members enjoyed a tenure of 2-4 years. ii) Members of the board should not be current/ex working members of the group. Mr.

iii) Chairman of the board should not be the CEO. Here. A significant 25% of the board as shown above is either a part of the top management/related to them in some way. The board is supposed to keep an eye on top management and should work more for stockholders. might put its interests above stockholders’ interests. The Chairman of the board is the managing directors of the company. there is a probability that the management. forming a substantial part of the board.Leela hotels did not have an independent unbiased board of directors essential for making appropriate financial decisions. iv) Members of the board mustn’t all be connected to the CEO/management. This leads to the conclusion that the company. .

They are classified into the following categories: i) Promoters ii) Institutions iii) Individuals iv) Others: Corporate Bodies. Foreign Nationals.Shareholding Pattern Analysis The top shareholders from 2011-2016 are shown below. NRI 2011-12 2012-13 2013-14 .

2014-15 2015-16 .

Because of this reason. as per the top shareholder statistics. In all.) the companies in the same group. This does not act to protect small shareholders’ interests in any way. A closer look at the stock holding pattern suggests that the percentage of institutional stock holders is less than 5%.This is good for the company and acts a shield for the small investors.e. It is also observed that the top stock holders are a part of the top management as well as the board of directors. It is also seen that the leading stakeholders are companies belonging to the Leela Group. Moving over to total shareholding. This is a bad indicator as strong- minded individuals as top stakeholders are a boon to stockholders’ wealth. the shareholding pattern. Thus. They will push the company to change if it needs change. Almost 60% of the shares are held by the promoters of the company. So. the shareholding pattern does not look supportive for small shareholders’ wealth protection. the graph below shows the total shareholding in the various categories. . decisions maybe in the best interest of the group but not the small investors. (i. This might lead to biased decisions which might not be in the best interest of the individuals and other share holders. it is impossible for outsiders to change the way these companies work.It is observed that none of the top shareholders are individuals. Otherwise the existing management is stuck with inertia. does not look good.

Business Value Maximization .

it can be clearly observed that the top management is a part of the board and the managers tend to put their interests above the stockholders. Due to this.The classical view point of business value maximization states that that the objective of the firm is to maximize its value to its stockholders. It could be suggested that the company’s board should be diversified to contain more unrelated individuals so as to incorporate an unbiased decision. the objective of stock holder wealth maximization and hence business value maximization is at stake. it would be advisable if the top management doesn’t interfere in the decisions of the board. the board has little control over the management of the company. This would help enhance the autonomy of the board and hence the small stock holders’ interests can be protected. Hence. . Also. In the Leela group.