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Leading Tilaknagar Industries Ltd (NSEI:TI) as the CEO, Amit Dahanukar took the company to a valuation of ₹2.33B. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. 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 Dahanukar’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 Tilaknagar Industries
What has been the trend in TI’s earnings?
Profitability of a company is a strong indication of TI’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Dahanukar’s performance. Over the last year TI released negative earnings of -₹1.93B . However, this is an improvement on prior year’s loss of -₹2.79B, which may signal a turnaround since TI has been loss-making for the past five years, on average, with an EPS of -₹5.16. Since earnings are heading towards the right direction, CEO pay should mirror Dahanukar’s hard work. In the same year, Dahanukar’s total remuneration declined by more than half of the prior year’s level, to ₹12.55M. Although I couldn’t find information on the composition of Dahanukar’s pay, if some portion were non-cash items such as stocks and options, then variabilities in TI’s share price can impact the actual level of what the CEO actually collects at the end of the year.
Is TI’s CEO overpaid relative to the market?
Though no standard benchmark exists, since compensation should account for specific factors of the company and market, we can estimate a high-level yardstick to see if TI is an outlier. This exercise can help shareholders ask the right question about Dahanukar’s incentive alignment. On average, a BSE or NSEI small-cap is worth around ₹9.88 Arab, generates earnings of ₹43 Crore, and pays its CEO at roughly ₹73 Lakh per year. Usually I would use earnings and market cap to account for variations in performance, however, TI’s negative earnings lower the usefulness of my formula. Looking at the range of compensation for small-cap executives, it seems like Dahanukar’s pay outstrips those in comparable companies.
What this means for you:
My analysis shows that Dahanukar may be paid above the appropriate level, based on the size of TI and its recent year’s earnings performance. The question to answer now is whether this level of pay is justified. There are most likely other factors I have not account for, but in any case, this outcome should provide a basis for you as shareholders, to question the board’s decision to increase CEO pay in the future. If you have not done so already, I urge you to complete your research by taking a look at the following: