PN Gadgil Jewellers’ KMP Took 18.5% of Net Profit in FY23-24, Some Other Listed Jewellers 2.6%-6.7%
Moneylife Digital Team 13 September 2024
PN Gadgil Jewellers Ltd (PNG), a Maharashtra-based jewellery chain, has come out with an initial public offering (IPO). One of the interesting aspects of the IPO is the exorbitant compensation to the management as a percentage of profit. The compensation of key managerial personnel (KMP) as a percentage of net profit for PN Gadgil in FY22-23 was extraordinarily high. Of this, the salary of managing director (MD) Saurabh Vidyadhar Gadgil alone is 21%. Here is an extract from the draft red herring prospectus (DRHP).
                               
 
The total remuneration of the MD in FY22-23 was Rs18.3 crore which was around 21% of net profit. PNG has not disclosed its net profit and remuneration for FY23-24 in the DRHP. According to a research note put out by Dolat Capital, the compensation of the KMP is 25.8%. The second KMP is the MD’s cousin. However, according to Dolat, the percentage figure went down in FY23-24, when net profit shot up.
 
 
Dolat mentions in this report that such high compensation remains a concern; but adds, “Nevertheless, the management has indicated that it will re-adjust the remuneration according to industry standards, going forward.”
 
Compensation as a percentage of profits varies wildly, not only among companies across sectors but even within a sector. However, when we compare this among other listed peers like Senco Gold, Thangamayil Jewellery Ltd and Kalyan Jewellers India Ltd, PNG's number stands out like a sore thumb. None of the other three jewellery companies is paying a hefty share of their profit to the KMP, as per their FY23-24 disclosures in annual reports. 
 
Thangamayil’s KMP took as little as 2.7% of the company’s net profit as of FY23-24, the least among the four. Senco Gold pays only slightly more—2.9% of its net profit. Kalyan Jewellers paid 6.7% of its net profit as remuneration of KMPs in FY23-24.
 
 
 
 
PNG's KMPs extracted high profits probably because it was a private company. The silver lining is that, once it is listed, it will be under the comparison of the kind we have mentioned above and will probably reduce the KMP compensation substantially. This will release substantial profits for all shareholders. Assuming KMP compensation comes to even 10%, around 8% of profits would get added to the net profit of the publicly-listed PNG. This is probably not being factored into next year’s projections. We have published the IPO analysis of PNG here.
 
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