Sanjay Yewale is the CEO of Kalyani Investment Company Limited (NSE:KICL), which has recently grown to a market capitalization of ₹9.60b. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. 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 Yewale’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.
What has KICL's performance been like?Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, KICL delivered an earnings of ₹418.43m , which is an increase of 49.99% from its previous year's earnings of ₹278.98m. This is a positive indication that KICL has strived to maintain a good track record of profitability in the face of any headwinds. Since earnings are heading towards the right direction, CEO pay should be reflective of Yewale's value creation for shareholders. Over the same period Yewale's total compensation rose by 15.99% to ₹8.93m. Although I couldn't find information on the composition of Yewale's pay, if some portion were non-cash items such as stocks and options, then fluxes in KICL's share price can affect the actual level of what the CEO actually takes home at the end of the day.
Is KICL's CEO overpaid relative to the market?Despite the fact that one size does not fit all, as compensation should be tailored to the specific company and market, we can evaluate a high-level thresold to see if KICL is an outlier. This outcome can help shareholders ask the right question about Yewale’s incentive alignment. Typically, a BSE or NSEI small-cap has a value of ₹9.88 Arab, generates earnings of ₹43 Crore, and pays its CEO circa ₹73 Lakh per annum. Allowing for the size of KICL in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Yewale is paid on a similar level to other BSE and NSEI CEOs of small-caps, on average. This indicates that Yewale’s pay is fair.
You can breathe easy knowing that shareholder funds aren't being used to overpay KICL's CEO. However, on the flipside, you should ask whether Yewale is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors' voices. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Governance: To find out more about KICL's governance, look through our infographic report of the company's board and management.
- 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.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of KICL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.
When trading Kalyani Investment or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
Simply Wall St has no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020