Is Pearl Global Industries Limited’s (NSE:PGIL) CEO Overpaid Relative To Its Peers?

Pulkit Seth is the CEO of Pearl Global Industries Limited (NSE:PGIL), which has recently grown to a market capitalization of ₹2.73b. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. Today we will assess Seth’s pay and compare this to the company’s performance over the same period, as well as measure it against other Indian CEOs leading companies of similar size and profitability. View out our latest analysis for Pearl Global Industries

What has been the trend in PGIL’s earnings?

Profitability of a company is a strong indication of PGIL’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Seth’s performance. Most recently, PGIL released a profit of ₹240.81m , which is a rather significant decline from its prior year’s profit (excluding extraordinary items) of ₹335.07m. However, PGIL has strived to maintain a good track record of profitability, given its average EPS of ₹14.71 over the past couple of years. During times of falling profits, the company may be facing a period of reinvestment and growth, or it can be an indication of some headwind. Regardless, CEO compensation should mirror the current condition of the business. From the latest financial report, Seth’s total compensation rose by 27.92% to ₹9.62m.
NSEI:PGIL Income Statement July 16th 18
NSEI:PGIL Income Statement July 16th 18

Is PGIL’s CEO overpaid relative to the market?

While there is no cookie-cutter approach, as remuneration should account for specific factors of the company and market, we can fashion a high-level thresold to see if PGIL is an outlier. This outcome can help direct shareholders to ask the right question about Seth’s incentive alignment. On average, a BSE or NSEI small-cap is worth around ₹9.88 Arab, creates earnings of ₹43 Crore, and remunerates its CEO at roughly ₹73 Lakh per annum. Based on PGIL’s size and performance, in terms of market cap and earnings, it seems that Seth is compensated above other BSE and NSEI CEOs of profitable small-caps. Even though this is only a high-level calculation, investors should be aware of this expense.

What this means for you:

In order to determine whether or not you should invest in PGIL, your thesis should be built on fundamentals. Even though CEO pay isn’t technically a key concern, it could serve as an indication as to how board members align incentives and how they think about setting policies. These issues directly impacts how PGIL makes money, and factors impacting your return on investment. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Governance: To find out more about PGIL’s governance, look through our infographic report of the company’s board and management.
  2. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of PGIL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!