Shareholder Beware?

"The Shareholders hereby agree to pay management Rs. 14.86 crores in the 1^st year, Rs. 70.72 crores in the second year, Rs. 114.1 crores in the third year, Rs. 182.09 crores in the fourth year as franchisee fees when previously no such fees were being paid out"

Should such a resolution surprise and shock the shareholders or should they just willingly play along in the better interests of management?

Something like this is happening at Tide Water Oil (NSE: TIDEWATER) and the shareholders seem to be blissfully unaware.

Sometime in 2014, the brand ENEOS was transferred to a JV company, JX Nippon TWO Lubricants India Private Limited, with management affiliations. Prior to this no franchisee fees were being paid out on the ENEOS brand. However, after the brand was transferred out to this JV with management interests, franchisee fees started shooting the sky. 

Since 2015 franchisee fees are being paid in highly disproportionate amounts so much so that the cumulative franchisee fees paid out is roughly double the incremental sales.

 

  In 2018 for instance, compared to a sales growth of -2%, the franchisee fees grew 60%. From 1.6% in 2015, franchisee fees have skyrocketed to almost 16% of the sales without any tangible benefits accruing to the company or shareholders.Shareholders would be well advised to read the postal ballot notices and check for new fees or charges being paid out and try to understand the rationale behind the same before parting with their hard earned money.