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Voting Advisory September 2014 PTL Enterprises Limited 1 10 September 2014 PTL Enterprises Limited Annual General Meeting (AGM) Company Profile BSE: 509220 | NSE: PTL Industry: Healthcare Index: -/- Face Value: Rs.2 Fiscal Year End: March Meeting Date: 22 September 2014, 10:00 AM Proxy Deadline: 20 September 2014, 10:00 AM E-voting: www.evoting.nsdl.com E-voting dates: 17 September 2014 (9:00 AM) to 18 September 2014 (6:00 PM) Notice Date: 18 July 2014 Meeting Venue: Aangan, 5th Floor, Bharat Tourist Home (BTH), D H Road, Gandhi Square, Kochi (Kerala), India. Agenda Items # Type 1 Description of resolution IiAS Recommendation See Legend 1 O Adoption of financial statements for the year ended 31 March 2014 See Analysis IiAS believes that a comprehensive review of the financials of a company is a critical exercise which often requires first-hand information and proper due diligence. IiAS does not provide voting recommendations on resolutions for adoption of financial statements, given the limited time between receipt of the annual report and the shareholder meeting, but provides analysis of critical ratios. 2 O Declaration of dividend of Re 1.0 per share (FV Rs 2) FOR Dividend of Re 1.0 per share is same as paid for FY13. The payout ratio for FY14 is in- line with the payout in the preceding two years at 44%. 3 O Reappointment of US Oberoi as director AGAINST US Oberoi has been on the board of PTL Enterprises for the past 19 years. Therefore, he is aware of the valuations and the investment that took place in the healthcare business. PTL Enterprises’ decision to sell the healthcare business to a promoter- owned unlisted company is favourable to the promoters but against the interest of minority shareholders (see discussion on Resolution 10). US Oberoi has not performed his fiduciary responsibility of protecting, equally, the interest of all shareholders. G M R S T V 4 O Reappointment of HN Mehta Associates as statutory auditors AGAINST HN Mehta Associates have been PTL’s statutory auditors for the past 25 years. The reappointment is neither in line with IiAS Voting Policy on Auditor Rotation nor follows the spirit of Section 139 of the Companies Act 2013. Under Section 139 of the Companies Act 2013, an audit firm’s tenure may extend to a maximum of two consecutive terms of five years each (maximum 10 years). Although the Act has given companies a three-year window to comply, IiAS expects companies to be proactive and start abiding by the spirit of the regulations at the earliest. G M R S T V 5 O Reappointment of K Jacob Thomas as an Independent Director for a period of 5 years AGAINST K Jacob Thomas has been on the board of the company for the last 19 years. The length of tenure is inversely proportionate to independence of a director. Due to the long association (>10 years) of K Jacob Thomas in the board of the company, he is considered as non-independent. If the company believes that they benefit from K Jacob Thomas serving on the board, it must appoint him on the board as a non-independent director and induct additional independent directors to ensure that the board composition is in line with the requirements of Clause 49 of the Listing Agreement G M R S T V 6 O Reappointment of (Ms.) Pallavi Shroff as an Independent Director for a period of 5 years AGAINST (Ms.) Pallavi Shroff has not attended any of the four board meetings held in FY14 nor any of the board meetings over the last three years. IiAS expects directors to take their responsibilities seriously and attend all board meetings; IiAS has a threshold of 75% G M R S T V www.iias.in

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Page 1: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 1

10 September 2014 PTL Enterprises LimitedAnnual General Meeting (AGM)

Company Profile BSE: 509220 | NSE: PTL Industry: Healthcare Index: -/- Face Value: Rs.2 Fiscal Year End: March

Meeting Date: 22 September 2014, 10:00 AM

Proxy Deadline: 20 September 2014, 10:00 AM

E-voting: www.evoting.nsdl.com

E-voting dates: 17 September 2014 (9:00 AM) to 18 September 2014 (6:00 PM)

Notice Date: 18 July 2014

Meeting Venue: Aangan, 5th Floor, Bharat Tourist Home (BTH), D H Road, Gandhi Square, Kochi (Kerala), India.

Agenda Items

# Type1 Description of resolution IiAS

Recommendation See Legend

1 O Adoption of financial statements for the year ended 31 March 2014 See Analysis

IiAS believes that a comprehensive review of the financials of a company is a critical exercise which often requires first-hand information and proper due diligence. IiAS does not provide voting recommendations on resolutions for adoption of financial statements, given the limited time between receipt of the annual report and the shareholder meeting, but provides analysis of critical ratios.

2 O Declaration of dividend of Re 1.0 per share (FV Rs 2) FOR

Dividend of Re 1.0 per share is same as paid for FY13. The payout ratio for FY14 is in-line with the payout in the preceding two years at 44%.

3 O Reappointment of US Oberoi as director AGAINST

US Oberoi has been on the board of PTL Enterprises for the past 19 years. Therefore, he is aware of the valuations and the investment that took place in the healthcare business. PTL Enterprises’ decision to sell the healthcare business to a promoter-owned unlisted company is favourable to the promoters but against the interest of minority shareholders (see discussion on Resolution 10). US Oberoi has not performed his fiduciary responsibility of protecting, equally, the interest of all shareholders.

G M R S T V

4 O Reappointment of HN Mehta Associates as statutory auditors AGAINST

HN Mehta Associates have been PTL’s statutory auditors for the past 25 years. The reappointment is neither in line with IiAS Voting Policy on Auditor Rotation nor follows the spirit of Section 139 of the Companies Act 2013.

Under Section 139 of the Companies Act 2013, an audit firm’s tenure may extend to a maximum of two consecutive terms of five years each (maximum 10 years). Although the Act has given companies a three-year window to comply, IiAS expects companies to be proactive and start abiding by the spirit of the regulations at the earliest.

G M R S T V

5 O Reappointment of K Jacob Thomas as an Independent Director for a period of 5 years

AGAINST

K Jacob Thomas has been on the board of the company for the last 19 years. The length of tenure is inversely proportionate to independence of a director. Due to the long association (>10 years) of K Jacob Thomas in the board of the company, he is considered as non-independent.

If the company believes that they benefit from K Jacob Thomas serving on the board, it must appoint him on the board as a non-independent director and induct additional independent directors to ensure that the board composition is in line with the requirements of Clause 49 of the Listing Agreement

G M R S T V

6 O Reappointment of (Ms.) Pallavi Shroff as an Independent Director for a period of 5 years

AGAINST

(Ms.) Pallavi Shroff has not attended any of the four board meetings held in FY14 nor any of the board meetings over the last three years. IiAS expects directors to take their responsibilities seriously and attend all board meetings; IiAS has a threshold of 75%

G M R S T V

www.iias.in

Page 2: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 2

# Type1 Description of resolution IiAS

Recommendation See Legend

attendance of board meetings, over a three year period, while voting on re-appointment of directors.

7 O Reappointment of US Anand as an Independent Director for a period of 5 years AGAINST

US Anand has been on the board of PTL Enterprises for the past 7 years. Therefore, he is aware that LHPL’s price for the shares of AHSL and AMSL are extremely low – well below the cost at which PTL Enterprises invested in the two companies (see discussion on Resolution 10). As a board member, he holds responsibility for this decision. As an independent director, he has failed in his responsibility to protect the interest of minority shareholders. Therefore, US Anand must not be reappointed to PTL Enterprises’ Board

G M R S T V

8 O Ratify the appointment and payment of remuneration to C Thomas Mathews as Manager

FOR

C Thomas Mathews was appointed as Manager, to have charge of managing the affairs of the company, effective 12 February 2014 for five years. He resigned effective 24 July 2014 and was paid remuneration of Rs 2.6 mn for the period of employment. The remuneration paid seems reasonable in absolute terms and in commensuration of the size of the company.

9 O Appointment of Bala Krishnan G as Manager and fix his remuneration FOR

Bala Krishna G was appointed as Manager, to have charge of managing the affairs of the company, effective 25 July 2014 for five years. The proposed remuneration is Rs 1.04 mn per annum. The remuneration paid seems reasonable in absolute terms and in commensuration of the size of the company.

10 S To approve divestment of shareholding of Artemis Health Sciences Ltd. and Artemis Medicare Services Ltd.

AGAINST

PTL proposes to sell Artemis Health Sciences Ltd. and Artemis Medicare Services Ltd (‘healthcare business’) to Leto Healthcare Private Limited (LHPL) for a consideration of Rs.1.81bn. LHPL is a related party, since it is controlled (directly and indirectly) by Onkar Kanwar. The healthcare business comprises of two hospitals, in Dwarka (47 beds) and in Gurgaon (300 beds with the capacity to expand to 500 beds). IiAS recommends voting against this resolution because the proposed valuation is very low. Recent transactions in the hospital business peg the value of the two hospital at over Rs.8.0bn. Additionally, the rationale for the sale of the healthcare business, which accounts for over 85% of revenues and 25% of profits in 2013-14, is unclear. Also read PTL: That Old Sinking Feeling

G M R S T V

[1] O/S: Ordinary/Special

Page 3: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 3

Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries, engages in the healthcare business in India. The company operates the Artemis Health Institute, a 300 bedded tertiary care super specialty hospital in Gurgaon, which provides services focusing on cardiovascular, oncology, orthopedics, and minimal invasive surgery; and Artemis Hospital, a 47 bedded multi-specialty hospital that provides emergency services, diagnostic services, and critical care units in the areas of cardiology, orthopedics, mother and child care, endocrinology, and pulmonology. PTL Enterprises Limited also leases its tire manufacturing plant to Apollo Tyres, which is also controlled by Onkar Kanwar. The company was formerly known as Premier Tyres Ltd. and changed its name to PTL Enterprises Limited in May 2005.

Promoters: Onkar Kanwar Governor of Kerala

Market snapshot Mkt Price (Rs): 38.9 Mkt Cap (Rs bn): 2.6 Equity Capital (Rs bn): 0.13 Net Worth (Rs bn): 1.31 52 week H-L (Rs): 53.6 -18.1 Current P/E(x): 10.5 Current P/B (x): 0.5

Previous Advisory -

Price Performance (Period ended 3 September 2014)

Financial performance (Consolidated) (Rs.mn) Year ending 31-Mar

2012 2013 2014

Total Income 2320.6 2630.4 3058.5

EBITDA 627.8 624.8 656.0

EBITDA Margin (%) 27.1 23.8 21.4

PBT 265.7 252.8 335.9

PBT Margin (%) 11.4 9.6 11.0

PAT 174.7 171.1 242.6

PAT Margin (%) 7.5 6.5 7.9

EPS (Rs.) 2.6 2.6 3.7

ROANW (%) 17.3 15.5 19.7

ROACE (%) 8.9 5.8 8.0

Debt/EBITDA (x) 3.1 2.9 2.7

Trend in Shareholding Pattern (%) As on Promoter1 DII FII Others

30-Jun-14 74.9 3.2 0.0 21.9

31-Mar-14 74.9 3.2 0.0 21.9

31-Dec-13 74.9 3.2 0.0 21.9

30-Sep-13 74.9 3.2 0.0 21.9

31-Mar-13 74.9 3.2 0.0 21.9

31-Mar-12 74.9 3.2 0.0 21.9

31-Mar-11 74.9 3.2 0.0 21.9

31-Mar-10 72.8 3.2 0.0 23.9

[1] Pledged Shares: Nil

Top Public Shareholders

No. Name of the Shareholder Shares

held (million) Holding

as % of total

1 Kerala State Industrial Development Co 1.50 2.27

2 Siddique Dawood 1.49 2.25

3 Amazer Investment & Finance Ltd. 1.30 1.96

4 PTL Enterprises Ltd - Unclaimed Suspense 1.10 1.67

Total 5.39 8.14

47% 50%44%

172%

3 Yrs 5 Yr

S&P BSE Small Cap

PTL

Page 4: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 4

Category: Accounts

Resolution 1: Adoption of Financial Statements

IiAS believes that a comprehensive review of the financials of a company is a critical exercise which often requires first-hand information and proper due diligence. IiAS does not provide voting recommendations on resolutions for adoption of financial statements, given the limited time between receipt of the annual report and the shareholder meeting, but provides analysis of critical ratios. A snapshot of the key accounting parameters is presented below:

Standalone vs Consolidated (Amounts in Rs.bn) Revenue by Segment

Inner ring represents FY13 data Outer ring represents FY14 data

.

Risk Indicators

Leverage Profile

For the year ended 31-Mar 2012 2013 2014

CFO/EBITDA (x) 0.6 0.8 1.3

Exceptional items/total income (%) - - -

Interest/Average Debt (%) 28.2 14.5 12.4

Contingent liabilities/net worth (%)

46.9 41.5 46.8

Receivables Days 33.0 31.8 35.2

Major Related Party Transactions (RPT) (Rs.bn)

Year 2013 2014 Details Assessment

Receivables 0.0 0.1 Predominantly to associate company, Apollo Tyres 47% of other long term

liabilities & trade payables

Payables 251.8 443.2 All to subsidiaries 9.6% of trade payables

Liquidity

As on 31-Mar-2014 Rs.mn

Current Investments -

Cash flow from operations 849.3

Cash and cash equivalents 252.1

Audit Integrity Parameter Result

Name of Auditor HN Mehta Associates

Audit Network -

Tenure of auditor (yrs) 25

Tenure of audit partner (yrs) >5

0.4

0.2

2.2

2.6

0.12.1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Revenues Profits Assets

Standalone Subsidiaries

84%

15%1%

86%

13%1%

Health Care

Lease ofPlant

Others

0.0

2.0

4.0

1700

1800

1900

2000

FY12 FY13 FY14

debt Debt/Net worth Debt/EBIDTA

Rs mn Ratio

Page 5: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 5

Category: Dividend

# Type Description of resolution IiAS

Recommendation Indicators See Legend

2 O Declaration of dividend of Re 1 per share (FV Rs 2) FOR

IiAS Assessment Parameters for Dividend Payout

Assessment Parameters Comment Details

Is growth in dividend higher than growth in profits? No

Does the company have a stated dividend policy? No

Does the company have room to pay a higher dividend? No

N.A – Not applicable

Discussion PTL proposes to pay dividend of Re 1 per share, same as paid for FY13. The pay-out ratio for FY14 at 44.0% is in-line with the pay out in the preceding two years. Table 1: Key ratios

Particulars FY12 FY13 FY14

Dividend per share (Rs) 1.0 1.0 1.0

Profit after tax (Rs mn) 174.9 168.8 176.1

Profit growth y-o-y (%) 11.8 (3.5) 4.3

Total dividend (including tax on dividend) (Rs bn) 76.9 77.4 77.4

Dividend growth y-o-y (%) 0.0 0.0 0.0

Payout Ratio (%) 44.0 45.9 44.0

Source: Company filings, IiAS Research

IiAS recommends voting FOR the resolution.

Page 6: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 6

Category: Auditors

# Type Description of resolution IiAS

Recommendation Indicators See Legend

5 O Reappointment of HN Mehta Associates as statutory auditors AGAINST G M R S T V

IiAS Assessment Parameters for Auditor Appointment

Parameter Comment Details

Is the tenure of the auditor firm more than 10 consecutive years? Yes

Has the audit partner been rotated in the last five years? No

Is the auditor remuneration commensurate with size of company? Yes

Discussion PTL proposes to reappoint HN Mehta Associates as statutory auditors: HN Mehta Associates have been PTL’s statutory auditors for the past 25 years.

IiAS’ Voting Policy on Auditor Rotation recommends that auditors must be rotated at least once every 10 years in order to maintain the independence of the auditor and the overall objectivity of the audit process. Moreover, under section 139 of the Companies Act 2013 (see Box 1 below), an audit firm’s tenure may extend to a maximum of two consecutive terms of five years each (maximum 10 years). Although the Act has given companies a three-year window to comply, IiAS expects companies to be proactive and start abiding by the spirit of the regulations at the earliest.

Box 1: Regulatory snapshot: Auditor appointment under Section 139 of the Companies Act 2013

The reappointment of HN Mehta Associates is neither in line with IiAS Voting Policy on Auditor Rotation nor follows the spirit of Section 139 of the Companies Act 2013. Accordingly, IiAS recommends voting AGAINST the resolution.

Approval Process: Section 139 of the Companies Act 2013 states that every company shall appoint an auditor for an initial term of five years. The appointment must be ratified by shareholders at every annual general meeting of the company by passing an ordinary resolution.

Auditor Rotation: The Act requires mandatory rotation of individual auditors in every 5 years and of the audit firm in every 10 years (after two terms of 5 years each) in listed companies. A cooling-off period of five years after the stipulated threshold is required to be considered eligible for re-appointment.

Eligibility: For the purpose of rotation, the incoming auditor or audit firm shall not be eligible if they are part of the same audit network (which includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control) as the outgoing auditor or audit firm. Further, if a partner, who is in charge of an audit firm and certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.

Applicability: In the rules notified recently by the Ministry of Corporate Affairs (MCA), it has been clarified that section 139 will be applicable on a retrospective basis - which means the existing term of the current auditors will be taken into account for computing the overall tenure.

Commencement: Companies will have to comply with the requirements within three years from the date of commencement of the Act.

Page 7: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 7

Category: Board Appointments

# Type1 Description of resolution IiAS

Recommendation Indicators See Legend

3 O Reappointment of US Oberoi as director AGAINST G M R S T V

5 O Reappointment of K Jacob Thomas as an Independent Director for a period of 5 years

AGAINST G M R S T V

6 O Reappointment of (Ms.) Pallavi Shroff as an Independent Director for a period of 5 years

AGAINST G M R S T V

7 O Reappointment of US Anand as an Independent Director for a period of 5 years

AGAINST G M R S T V

Table 2: Board Composition

Sl. No

Name of director

Occupation Age Tenure

(yrs)

% of board meetings attended

Other directorships

Pay (Rs.mn)

IiAS Recommendation

Non-executive Non-Independent Directors

1 Onkar Kanwar (promoter)

Chairman, CMD Apollo Tyres

72 19 100 8 0.04

2 Neeraj Kanwar (promoter)

Vice Chairman & MD, Apollo Tyres

43 17 25 2 0.02

3 Harish Bahadur Head of Corp. Inv., Apollo Tyres

62 7 100 2 0.09

4 PH Kurian Nominee, Govt. of Kerala

- <1 25 12 0.01

5 US Oberoi Chief Corp Aff. & WTD, Apollo Tyres

70 19 100 2 0.07 AGAINST

6 K Jacob Thomas1 MD, Vaniampara Rubber Co. Ltd.

78 19 100 3 0.08 AGAINST

Non-executive Independent Directors

7 (Ms.) Pallavi Shroff

Partner, Amarchand & Mangaldas & Suresh A. Shroff & Co.

58 6 0 5 0.00 AGAINST

8 US Anand Chartered Accountant

71 5 75 0 0.11 AGAINST

Seeking reappointment Seeking appointment

[1] Independent as per company classification. IiAS classifies him as non-independent on account of extended tenure of 10+ years on board.

Table 3: Committee Composition1

Name of Committee

No of directors

Chairman % of

independence Compliance Remarks

Audit 3 Non-Independent 33 Non-Compliant Chairman and 67% should be independent

Remuneration 4 Independent 25 Non-Compliant 50% should be independent

Investor Grievance 4 Non-Independent 25 Compliant -

[1] as per IiAS Classification

Page 8: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 8

IiAS Assessment Parameters for Board Appointments

Assessment Parameter Comment Regulatory Requirement

Is the chairman of the board an independent director? No Recommended

Is there a separation in the roles between the Chairman and MD/CEO? NA Recommended

Proportion of independent directors on the board [1] 25% 50%

Proportion of non-executive directors on the board 100%

Is there at least one woman director on the board? Yes Required, At least 1

Does the company have a policy on the retirement age of directors? No

Does the company have a whistleblower policy? No Required

[1] As per IiAS classification

NA: Not Applicable

PTL classifies three of the non-executive directors as independent. As per company classification, 38% of the board is independent, lower than 50% as required by the provisions of Clause 49, when the chairman is a promoter. PTL classifies three of the non-executive directors as independent. Of these, K Jacob Thomas has been associated with the company for an extended tenure of 18 years. IiAS believes the length of tenure is inversely proportionate to independence of a director – hence, IiAS has classified him as non-independent. As per IiAS classification 25% of the directors on the board of PTL are Independent. The company needs to appoint two additional independent directors to comply with provisions of Clause 49. The recently notified section 149 (10) (11) of the Companies Act 2013 and the new Clause 49 of the Listing Agreement states that independent directors can have a maximum tenure of 10 years. Although both these regulations make this provision with prospective effect, IiAS expects companies to begin complying immediately.

Pallavi Shroff has not attended any of the board meetings held over the past three years. IiAS tracks attendance to board meetings over a three year period. If a director attends less than 75% of the board meetings over this period, IiAS recommends voting AGAINST the re-appointment. US Anand and US Oberoi have failed in their responsibility towards investors, as part of the board that agreed to sell PTL’s healthcare business to a promoter-owned unlisted company at extremely low valuations. They have been unable to protect minority shareholders’ rights. Box 2: IiAS policy snapshot –tenure for independent directors With regards to tenure, the IiAS policy follows the limits specified in the Companies Act 2013 – maximum tenure being limited to two consecutive terms of five years each. After ten years, an independent director will not be eligible for re-appointment for a period of an additional three years. Existing tenure will be taken into account for this.

Box 3: IiAS policy snapshot – minimum number of independent directors

Director Profile

K Jacob Thomas

Qualification -

Work experience Managing Director of Vaniampara Rubber Co. Ltd. and Comfoams Ltd.

Vast experience in rubber plantation business

Other directorships 1. Apollo Tyres Ltd. (listed) 2. Vaniampara Rubber Co. Ltd. 3. Comfoams Ltd.

Clause 49 of the Listing Agreement, states that for a company with an executive chairman; at least 50% of the board should comprise independent directors. In the case of a company with a non-executive chairman, at least one-third of the board should be independent. However, if non-executive chairman is a promoter, 50% of the directors have to be independent.

Page 9: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 9

(Ms) Pallavi Shroff Qualification Solicitor

Work experience Lead litigation partner - Amarchand & Mangaldas & Suresh A. Shroff & Co. (AMSS)

Other directorships

1. Apollo Tyres Ltd. (listed) 2. Maruti Suzuki Ltd. (listed) 3. Artemis Medicare Services Ltd 4. Artemis Health Services Ltd. 5. Trident Ltd. (listed)

US Oberoi Qualification Commerce Graduate

Work experience More than 45 years of experience in marketing, commercial, projects and management

affairs

Other directorships 1. Apollo Tyres Ltd. (listed) 2. PTL Projects Ltd.

US Anand Qualification Chartered Accountant

Work experience Over 38 years of experience in areas of accounts, finance, taxation and business development

Page 10: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 10

Category: Remuneration

# Type Description of resolution IiAS

Recommendation Indicators See Legend

8 O Ratify the appointment and payment of remuneration to C Thomas Mathews as Manager

FOR

Discussion C Thomas Mathew, 50 years, holds a degree in B. Tech and MBA. He was appointed, as a “Manager” with effect from 12 February 2014 for a period of five years subject to shareholders’ approval. He would in charge of managing of the affairs of the company. During the tenure of his appointment as Manager, Thomas Mathew was paid remuneration (CTC) of Rs 2.6 mn, for the period of employment, which included basic salary, retirals, flexi benefit plan and performance bonus etc. Thomas Mathew resigned as Manager of the company w.e.f. 24 July 2014. In view of this, PTL has sought shareholders’ approval to ratify the appointment and payment of remuneration. The remuneration paid seems reasonable in absolute terms and in commensuration of the size of the company. IiAS recommends voting FOR the resolution.

# Type Description of resolution IiAS

Recommendation Indicators See Legend

9 O Appointment of Bala Krishnan G as Manager and fix his remuneration

FOR

Discussion Bala Krishnan G, 55 years, holds a degree in BSc. in Engineering and M.B.A. He was appointed as a “Manager” of the company effective 25 July 2014 for a period of five years. He will in charge of managing of the affairs of the company. He will be paid remuneration of Rs 1.05 mn per annum which will include basic salary, retirals, flexi benefit plan and performance bonus. He will be eligible for annual increment up to a maximum of 50%. In case of inadequate or no profit in any financial year he will be paid as specified in Schedule V of the Companies Act, 2013. The remuneration paid seems reasonable in absolute terms and in commensuration of the size of the company. IiAS recommends voting FOR the resolution.

Page 11: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 11

Category: Related Party Transaction

# Type Description of resolution IiAS

Recommendation Indicators See Legend

10 S To approve divestment of shareholding of Artemis Health Sciences Ltd. a Artemis Medicare Services Ltd

AGAINST G M R S T V

Discussion PTL proposes to sell its sale of entire shareholding in Artemis Health Sciences Ltd. (AHSL) and Artemis Medicare Services Ltd. (AMSL), step down subsidiary of PTL, to Leto Healthcare Private Limited (LHPL). LHPL is an entity controlled and indirectly owned, by Onkar Kanwar. AHSL and AMSL own two hospitals:

1. A 300 bed hospital in Sector 51, Gurgaon that has a provision to enhance its capacity to 500 2. A 47 bed multi-specialty hospital in Dwarka, New Delhi.

Table 4: PTL’s investments in AHSL and AMSL

Particulars Units AHSL AMSL Total

Ownership Structure

PTL 100.0% 14.4%

AHSL - 85.6%

No. of equity shares held

PTL No. 16,510,000 3,025,000

AHSL No. - 18,010,000

PTL's cost of investment Rs. Mn. 1,155.7 423.5 1,579.2

PTL's cost of investment per share Rs. 70.0 140.0

Preference shares held by PTL Rs. Mn. 2.9 0.0 2.9

Loans from PTL Rs. Mn. 188.6 0.6 189.2

Table 5: The transaction value for the divestment of AHSL and AMSL

Particulars Units AHSL AMSL Total

No. of shares held by PTL No. 16,510,000 3,025,000

Sale value per share Rs. 94.0 86.0

Equity value of the transaction Rs. Mn. 1,551.9 260.2 1,812.1

Preference shares purchase at cost Rs. Mn. 2.9

Assignment of PTL loans to LHPL Rs. Mn. 189.2

Sale of medical equipment at book value owned by PTL and leased to the subsidiaries

Rs. Mn. 24.2

Total transaction value / cash flow Rs. Mn. 2,028.5

The sale price of equity shares of AMSL has been determined after taken into consideration the debt liability of

AMSL of Rs. 1.10 bn. The hospital equipment, which is proposed to be sold, has currently been leased out by PTL to AMSL for lease

rentals of Rs 5.4 mn per annum.

Page 12: PTL Enterprises Limited · Voting Advisory September 2014 PTL Enterprises Limited 3 Company Overview PTL Enterprises Limited (‘PTL’, or ‘the company’), through its subsidiaries,

Voting Advisory

September 2014 PTL Enterprises Limited 12

Two independent valuations of the business has been undertaken by Grant Thornton and SBI Capital Markets. Both have provided a different valuations. The notice does not provide detailed information on these valuations.

Table 6: The divestment of AHSL and AMSL: Valuation, Cost and Sale Price

Particulars Units AHSL AMSL Total

No. of shares held by PTL No. 16,510,000 3,025,000

Grant Thornton's valuation:

Price per share Rs. 79.76 72.62

Sale value Rs. Mn. 1,316.8 219.7 1,536.5

SBI Capital Markets' valuation:

Price per share Rs. Not disclosed 85.38

Sale value Rs. Mn. Not disclosed 258.3 NA

PTL's cost of acquisition

Cost per share Rs. 70.0 140.0

Investment value of equity shares Rs. Mn. 1,155.7 423.5 1,579.2

LHPL's offer price for PTL's shares Price per share Rs. 94.0 86.0

Sale value Rs. Mn. 1,551.9 260.2 1,812.1 Source: PTL Enterprises’ Annual Report 2013-14 and notice for the 2014 AGM

IiAS Analysis Rationale for Sale The company has stated that the hospital business is a non-core business and therefore a strategic exit from this business will enable the company to focus on its core operations. IiAS observes that PTL’s hospital business generated 85% of consolidated revenues and over 25% of profits (based on segment results) in FY2013-14. It accounted for over 90% of consolidated assets on 31 March 2014 (See Table 7 below). Additionally, most of the debt has been taken to invest in the healthcare business. While the company may have technical or legal reasons of calling the business “non-core”, at a more practical level, this stance cannot be justified. Table 7: PTL’s Healthcare segment is, by far, the largest contributor to its overall business (Rs. mn) PTL Enterprises: Segmental Information Healthcare Total Healthcare / Total

2013-14 2012-13 2013-14 2012-13 2013-14 2012-13

Revenues 2,611.6 2,164.8 3,038.2 2,580.4 86% 84%

Segment profits 194.6 149.0 552.1 513.6 35% 29%

Interest expenses 133.2 150.9 223.6 271.1 60% 56%

Net Profit 65.0 1.7 242.6 171.1 27% 1%

Segment Assets 3,132.3 2,873.9 3,425.4 3,140.8 91% 91%

Segment Liabilities 1,572.0 1,446.7 2,824.0 2,704.7 56% 53%

Hospital are long gestation businesses – PTL’s first hospital in Gurgaon became operational in 2007: the healthcare segment achieved cash break-even in 2010-11 and registered a nominal profit in 2011-12. Therefore, the timing of the transaction raises concerns – the minority shareholders have borne the brunt of the investment cycle and the new buyers will reap the benefits of a stabilized, revenue-generating business.

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PTL Enterprises, earlier know as Premier Tyres Limited, was set up in 1959 as a tyre manufacturing company. The company became a “sick unit,” following a series of losses, liquidity pressures, and labour issues during the early 1990s. Apollo Tyres took over took over the company in 1995. The company’s main objects clause contains tyre manufacturing. But, the argument that, therefore, the main or ‘core’ business of the company continues to be tyre manufacturing, is fraught with contradictions.

Over the past several years, there has been limited investments in the tyre manufacturing business. In the Management Discussion and Analysis report in PTL Enterprises’ 2013-14 Annual Report, the company has admitted that it has a “relatively old tyre manufacturing unit with not very modern machinery”. PTL has given its existing plant to Apollo Tyres on lease. Revenues from the lease of plant aggregated Rs.400 mn annually over the past three years. This accounts for about 15% of annual revenues but a large share of profits – largely because the business has almost no expenses, and will remain an annuity. Notwithstanding, the ability to grow the tyre manufacturing business remains limited, as the company has no direct presence in the tyre market.

Very low valuations

The investment in the Gurgaon hospital itself was Rs.2.0 bn1. Therefore, selling two hospitals (Gurgaon and Dwarka) for Rs.1.81 bn is below the investment in these hospitals.

In 2010-11, PTL Enterprise acquired all remaining shares held by minority shareholders in AHSL for an average price of Rs.113.86 per share. This acquisition price was established in the year in which the hospitals had achieved cash break-in. In 2013-14, the hospitals have generated returns – therefore, a valuation of Rs.94 per share for AHSL is extremely low.

In 2011-12, PTL Enterprises invested in the shares of its step-down subsidiary, AMSL at an average valuation of Rs.140 per share. The Gurgaon hospital is held by AMSL: In 2011-12, the hospitals business had begun to report nominal profits. Therefore, in 2013-14, when the business are reporting much healthier profits, a sale price of Rs.84 per share for AMSL is extremely low.

This week, Apollo Hospitals announced its plan to set up 12 hospitals housing 2,175 beds for an investment of Rs.20.33bn. The investment per bed for Apollo Hospital averages at Rs.9.3mn per bed. If a new 347 bed hospital were to be set up, it would entail an investment (only infrastructure cost) of at least Rs.3.24bn: the sale price of Rs.1.81bn is less than the set up cost of a new hospital at current prices.

On July 22, 2014, Max India announced sold stake in its hospital business to a South African healthcare major for a valuation of Rs.24 mn per bed. Based on this, the valuation of PTL Enterprises should be around Rs.8.30 bn.

US-based private equity fund Carlyle acquired 24% in Medanta Medicity for Rs.9.50 bn, taking the valuation to Rs.32 mn per bed. The hospital is located in Gurgaon. Based on this calculation, the valuation of PTL Enterprises’ two hospitals should be around Rs.12.15 bn.

The sale of the hospital business is unwarranted, especially given the positive outlook on the growth of the healthcare segment in India. Notwithstanding, if indeed the company wishes to exit this business, it must consider conducting an auction of the healthcare business, allowing LHPL to also participate. The bidder with the highest price, subject to the price being comparable to other similar transactions that have taken place recently, should be sold the hospital business.

IiAS recommends voting AGAINST the resolution.

1 Source: Directors Report, PTL Enterprises Limited Annual Report 2006-07

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Legend

IiAS publishes voting recommendations on shareholder resolutions. These recommendations are non-binding in nature. Investors may have their own voting parameters which may, on aspects, differ from those of IiAS. On such occasions, investors should use these recommendations as a guiding tool. The data and regulations reviewed while arriving at a recommendation are disclosed to the investors. This gives the investor clarity regarding the basis for our recommendations. Please note that voting recommendations do not constitute advice to buy, sell or hold securities.

Indicator Meaning Description Common Examples

Governance Issue

This symbol is used for resolutions which indicate poor corporate governance practices or non-compliance with the regulatory provisions. Consequently, they are usually accompanied with an AGAINST recommendation. IiAS may also include measures/best practices which the company can adopt to improve its governance record.

Managerial remuneration, Auditor appointments

Minority shareholder impact

This symbol is used for resolutions which negatively affect the minority shareholders of the company. IiAS usually recommends voting AGAINST such resolutions as they benefit the controlling or a class of shareholders at the expense of others.

Preferential warrants, Differential rights

Moderate - High Risk

This symbol is used for operating decisions taken by the company management and IiAS will usually recommend voting FOR such resolutions. However, they carry an element of risk which may subsequently have a negative impact on the financials. Investors are therefore advised to review the risk factors highlighted by IiAS in its analysis before voting.

Any resolution

Strategic

Indicates a strategic decision of the company, the long term impact of which cannot be accurately ascertained at the time of proposal. These may be accompanied with a FOR or AGAINST recommendation based on a preliminary review of data provided to investors. IiAS recommendations on such strategic decisions are dependent primarily on short-term indicators like market reaction, analyst opinions, valuation impact, etc. Investors may choose to support a resolution in expectation of higher returns.

Mergers, Amalgamations, Hive-offs, Entering new lines of business

Transparency Issue

Indicates lack of adequate information. Even though IiAS provides both FOR and AGAINST recommendations on such resolutions (based on available data), investors are advised to seek further clarifications from the company. Investors should take into account any additional information received from the company before voting.

Any resolution

Valuation

Refers to a valuation impact on the company’s financials. These resolutions are likely to impact the company’s margins and long term profitability. IiAS typically will recommend voting AGAINST such a resolution. Investors are advised to critically review the company’s proposal in such cases. However, they may choose to support a resolution in expectation of higher returns.

Increase in borrowings. Related party transactions, Excessive dilution

G

M

S

V

T

R

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Disclaimer

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