Planning Investor Relation

​So, what's the objective?​

​An effective Investor Relations needs clear objectives to be achieved under the overall objective of improving shareholder value. There could be multiple objectives based on the current status of their IR as well as their specific needs. For the same enterprise value, firms could differ in their objectives. While one could be looking at improving the overall liquidity in the stock, others could prioritise improving their institutional shareholding base. Some of the key objectives of an IR plan are: ​​

 

• ​Improving Institutional shareholding​​​​​​​​​ and the quality of Investors       ​

• ​Improving stock liquidity, while reducing price volatility​

• Expanding the number of sell-side analysts covering/tracking the stock​

Some of the aspects that management will have to incorporate in their plans would be things like:​

 

• Deciding on the level of forward-looking guidance to assist in reduced error of estimates​​

• Quality of financial and business disclosure to assist analysts/investors in their financial modeling​

• Participation in investor conferences​

• Attendance quality and breadth on conference calls​​​​

​

Managing in-house versus outsourcing​

​​​​​​​​​​​Managements need to decide carefully if they have the expertise and resources to manage IR in-house. Leading companies ensure that they dedicate their best and top-most resources like the CEO, CFO and senior management personnel to manage Investors. Large firms have dedicated teams to look after investors and analysts as their full-time responsibility. They develop the best practice from their exposure to global resources and talents.

 

However, increasingly, firms are recognizing the value of outsourcing their investor relations and strategic communication functions to dedicated experienced professionals. Communicating effectively with the capital market requires deep understanding, creativity, and most importantly, regular interaction with capital markets.​

​​​​​​​​​​​​

Outsource, but to whom?​

Outsourcing Investor Relations in India has grown significantly in the last 6-8 years in India. While there are many of them managing anywhere between1-75 clients odd, there are just 3-4 of them with more than 15 clients. However, between these three, they share almost 60-70% of the clients. The growth model has been simple- size begets size. Hiring more and more junior assets as client account managers to keep the costs low while the client list made them a formidable option to ignore. It became a large me-too market.

 

Indian corporates are today being advised by IR firms which have distorted the role of an IR advisor to that of an ​event manager and courier services packaged together.​ Most IR firms in India today replicate the services of a “courier agent” and an “event manager”. They carry communication back and forth between the management and investors, without adding any meaningful value-add from their side, unless having a more professional-looking powerpoint is considered a serious value-add. Quarter on quarter, analyst meets and conference calls have been more like a event management.

 

Most corporates today deal with "account managers" and not "advisors". These are "account managers" who have no experience of engaging ever with the analysts and the fund managers, or of analysing  investments. Not surprisingly, there is no capital market related advisory input, nor enough intelligence on markets and peers provided to clients. Most PR firms are also masquerading as IR firms. Our understanding is that the leaders, at least most of them, have metamorphosed from being a PR firm to IR firms. While there is always a subset of communication that both PR and IR have to manage, both are quite distinct and specialised services. We have seen some reverse trends as well, where pure IR firms have now ventured in to PR.  PR and IR are like chalk and cheese. While PR firms specialise in broader propagation of communication through mass-media, IR talks to a very narrow defined set of specialist audience and hence both the story and the story-telling is different.

​​​​​​​​​​​​​​

Assessing their IR account managers​

​​

​While the IR biggies have become bigger, have they necessarily got better? Depends on what did you expect from them. However, most clients have had no to minimal expectations. Reason- the concept of outsourcing IR was a new phenomenon and the clients learnt what the IR firms taught them.

Since most clients probably did not have any expectations, they had no yardstick to measure their performance. So, the relationship continued..on and on. Isn’t it a question that management should ponder on, therefore- What has changed since we outsourced our IR? Particularly, for those, who almost never changed their IR agencies and have been in relation for very long periods of 3-5 years and more?

We believe corporates should asses their IR account managers the way they would do their own employees or any other service provider- both before hiring as well as during the contracts.​ Before engaging with the IR firms, management should insist on the deliverable they expect. The IR deliverable should match the client's needs and not what the IR firms have to offer. Most importantly, the account managers should be experienced and able enough to be hired for the job. Remember, firms deal with the individual account managers and not their top guys during the contract period.

​