In This Article:
Gundavaram Rao took the reins as CEO of Kaveri Seed Company Limited’s (NSE:KSCL) and grew market cap to ₹41.71b recently. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. Today we will assess Rao’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.
Check out our latest analysis for Kaveri Seed
What has been the trend in KSCL’s earnings?
Earnings is a powerful indication of KSCL’s ability to invest shareholders’ funds and generate returns. Therefore I will use earnings as a proxy of Rao’s performance in the past year. Recently, KSCL produced an earnings of ₹2.11b , which is an increase of 171.40% from its last year’s earnings of ₹778.33m. This is an encouraging signal that KSCL aims to sustain a strong track record of generating profits regardless of the challenges. As profits are moving up and up, CEO pay should represent Rao’s hard work. In the same year, Rao’s total remuneration grew by 10.44% to ₹17.17m.
Is KSCL’s CEO overpaid relative to the market?
While there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can estimate a high-level thresold to see if KSCL deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Rao’s incentive alignment. Normally, a BSE or NSEI small-cap has a value of ₹9.88b, produces earnings of ₹430m, and pays its CEO circa ₹7.3m per annum. Based on the size of KSCL in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Rao is paid in-line with other comparable BSE and NSEI CEOs of profitable small-caps. This could mean Rao is paid a suitable level.
Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in KSCL, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
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Governance: To find out more about KSCL’s governance, look through our infographic report of the company’s board and management.
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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.
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Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of KSCL? 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 editorial-team@simplywallst.com.