Why HFCL's (NSE:HFCL) CEO Pay Matters

Mahendra Nahata became the CEO of HFCL Limited (NSE:HFCL) in 2005, and we think it's a good time to look at the executive's compensation against the backdrop of overall company performance. This analysis will also assess whether HFCL pays its CEO appropriately, considering recent earnings growth and total shareholder returns.

View our latest analysis for HFCL

How Does Total Compensation For Mahendra Nahata Compare With Other Companies In The Industry?

At the time of writing, our data shows that HFCL Limited has a market capitalization of ₹38b, and reported total annual CEO compensation of ₹68m for the year to March 2020. We note that's a decrease of 23% compared to last year. We note that the salary portion, which stands at ₹50.0m constitutes the majority of total compensation received by the CEO.

On comparing similar companies from the same industry with market caps ranging from ₹15b to ₹58b, we found that the median CEO total compensation was ₹42m. This suggests that Mahendra Nahata is paid more than the median for the industry. Moreover, Mahendra Nahata also holds ₹205m worth of HFCL stock directly under their own name, which reveals to us that they have a significant personal stake in the company.

On an industry level, around 61% of total compensation represents salary and 39% is other remuneration. It's interesting to note that HFCL pays out a greater portion of remuneration through salary, compared to the industry. If salary dominates total compensation, it suggests that CEO compensation is leaning less towards the variable component, which is usually linked with performance.

HFCL Limited's Growth

HFCL Limited has reduced its earnings per share by 2.8% a year over the last three years. In the last year, its revenue is down 16%.

A lack of EPS improvement is not good to see. 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. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Has HFCL Limited Been A Good Investment?

Given the total shareholder loss of 2.0% over three years, many shareholders in HFCL Limited are probably rather dissatisfied, to say the least. This suggests it would be unwise for the company to pay the CEO too generously.

To Conclude...

As we touched on above, HFCL Limited is currently paying its CEO higher than the median pay for CEOs of companies belonging to the same industry and with similar market capitalizations. This doesn't look good against shareholder returns, which have been negative for the past three years. Add to that declining EPS growth, and you have the perfect recipe for shareholder irritation. Understandably, the company's shareholders might have some questions about the CEO's remuneration, given the disappointing performance.

CEO pay is simply one of the many factors that need to be considered while examining business performance. That's why we did our research, and identified 4 warning signs for HFCL (of which 2 shouldn't be ignored!) that you should know about in order to have a holistic understanding of the stock.

Of course, you might find a fantastic investment by looking at a different set of stocks. So take a peek at this free list of interesting companies.

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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.
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