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PN Gadgil Jewellers Ltd (PNG), a prominent jewellery chain based in Maharashtra, is currently preparing for an initial public offering (IPO). However, the IPO has sparked controversy due to the exceptionally high compensation awarded to the company's key managerial personnel (KMP), particularly in relation to its net profit. This article delves into the details of the KMP compensation structure, highlighting the significant discrepancies between PNG and its peers within the jewellery industry.
In the fiscal year 2022-23, PNG's KMP received a substantial portion of the company's net profit, with the managing director (MD) Saurabh Vidyadhar Gadgil alone receiving a 21% share. This information, gleaned from PNG's draft red herring prospectus (DRHP), reveals a compensation structure that is significantly higher than industry standards. While PNG has not disclosed its net profit and remuneration for the following fiscal year (FY23-24) in the DRHP, a research note from Dolat Capital indicates that the KMP compensation for FY23-24 reached a staggering 25.8%. Although this percentage declined in FY23-24, possibly due to a surge in net profit, the overall compensation structure remains a cause for concern for investors and analysts.
Despite the concerns surrounding the KMP compensation, PNG's management has indicated that they will adjust the remuneration to align with industry standards in the future. However, a closer examination of other publicly listed jewellery companies reveals that PNG's compensation structure is significantly out of line with industry practices. Thangamayil Jewellery Ltd, Senco Gold, and Kalyan Jewellers India Ltd, all publicly traded peers in the jewellery sector, offer significantly lower compensation to their KMPs. Thangamayil, for instance, allocates only 2.7% of its net profit to KMP compensation, the lowest among the four companies. Senco Gold, closely trailing Thangamayil, allocates 2.9% of its net profit to KMP compensation. Kalyan Jewellers, while paying a slightly larger portion, still distributes only 6.7% of its net profit to KMP remuneration. These figures clearly demonstrate the significant disparity in compensation between PNG and its peers within the industry.
The high compensation at PNG raises concerns about corporate governance and potential conflicts of interest. Some investors may question whether the company's focus is on maximizing shareholder value or on enriching its management. Furthermore, the compensation structure could potentially disincentivize the company from allocating resources towards investments or growth initiatives. As PNG prepares for its IPO, investors will likely scrutinize its compensation structure and its commitment to aligning it with industry standards. The company's ability to address these concerns will significantly impact its ability to attract investors and secure a successful IPO.
Source: PN Gadgil Jewellers’ KMP Took 18.5% of Net Profit in FY23-24, Some Other Listed Jewellers 2.6%-6.7%