Shareholders May Not Be So Generous With SMS Pharmaceuticals Limited's (NSE:SMSPHARMA) CEO Compensation And Here's Why

SMS Pharmaceuticals Limited (NSE:SMSPHARMA) has exhibited strong share price growth in the past few years. However, its earnings growth has not kept up, suggesting that there may be something amiss. The upcoming AGM on 30 September 2022 may be an opportunity for shareholders to bring up any concerns they may have for the board’s attention. One way that shareholders can influence managerial decisions is through voting on CEO and executive remuneration packages, which studies show could impact company performance. From the data that we gathered, we think that shareholders should hold off on a raise on CEO compensation until performance starts to show some improvement.

See our latest analysis for SMS Pharmaceuticals

How Does Total Compensation For Ramesh Potluri Compare With Other Companies In The Industry?

Our data indicates that SMS Pharmaceuticals Limited has a market capitalization of ₹7.6b, and total annual CEO compensation was reported as ₹38m for the year to March 2022. We note that's a decrease of 19% compared to last year. In particular, the salary of ₹25.9m, makes up a huge portion of the total compensation being paid to the CEO.

For comparison, other companies in the industry with market capitalizations below ₹16b, reported a median total CEO compensation of ₹4.3m. This suggests that Ramesh Potluri is paid more than the median for the industry. Furthermore, Ramesh Potluri directly owns ₹2.7b worth of shares in the company, implying that they are deeply invested in the company's success.

Component	2022	2021	Proportion (2022)
Salary	₹26m	₹21m	68%
Other	₹12m	₹26m	32%
Total Compensation	₹38m	₹47m	100%

Talking in terms of the industry, salary represented approximately 92% of total compensation out of all the companies we analyzed, while other remuneration made up 8% of the pie. In SMS Pharmaceuticals' case, non-salary compensation represents a greater slice of total remuneration, in comparison to the broader industry. If total compensation veers towards salary, it suggests that the variable portion - which is generally tied to performance, is lower.

A Look at SMS Pharmaceuticals Limited's Growth Numbers

SMS Pharmaceuticals Limited has reduced its earnings per share by 14% a year over the last three years. Its revenue is down 31% over the previous year.

Few shareholders would be pleased to read that EPS have declined. And the fact that revenue is down year on year arguably paints an ugly picture. It's hard to argue the company is firing on all cylinders, so shareholders might be averse to high CEO remuneration. While we don't have analyst forecasts for the company, shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

Has SMS Pharmaceuticals Limited Been A Good Investment?

We think that the total shareholder return of 120%, over three years, would leave most SMS Pharmaceuticals Limited shareholders smiling. As a result, some may believe the CEO should be paid more than is normal for companies of similar size.

In Summary...

Although shareholders would be quite happy with the returns they have earned on their initial investment, earnings have failed to grow and this could mean returns may be hard to keep up. Shareholders should make the most of the coming opportunity to question the board on key concerns they may have and revisit their investment thesis with regards to the company.

It is always advisable to analyse CEO pay, along with performing a thorough analysis of the company's key performance areas. We identified 3 warning signs for SMS Pharmaceuticals (1 can't be ignored!) that you should be aware of before investing here.

Switching gears from SMS Pharmaceuticals, if you're hunting for a pristine balance sheet and premium returns, this free list of high return, low debt companies is a great place to look.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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. Simply Wall St has no position in any stocks mentioned.