Vishnu's Portfolio

What they have done is they have proposed the max ceiling of their remuneration for the next 3 years. It does not mean that the promoter will increase their remuneration from current 60 lac p.a. to 1.68 crore p.a. from next year itself.

I have tabulated the Ceiling revisions from the various AR and captured them below.

This needs to be considered with the below snapshot I had put up in Auro Labs thread. U can see that the promoters did not take any salary from FY07 to FY13 though they did take loans from FY07 to FY10.

Based on the above data, here are my observations:

  • Even if we consider the Promoter Salary/PAT ratio would be around 25% going forward, then the PAT has to 13.44 cr by FY22 (3x from here) if they have to justify taking entire 3.36 cr remuneration by then. (Possibly a proxy to mgmt’s confidence on making that number)
  • Considering they were taking negligible salary prior to FY14, one may think that they wanted to start showing white money sources, assuming that they previously had black money sources (a big assumption with no justification as of now). Additionally they have started taking secured loans from Banks and reducing the unsecured loans from Related parties. Also, they started paying taxes in the last 2 FY which was non-existent prior to that.
  • I personally am ok with the remuneration considering the significant increase in quality of the numbers across multiple parameters in Balance Sheet and cash flow statements. I would reconsider my stance if there is any deviation in the current trend.
  • Assuming they continue to deliver the numbers and PAT growth is sustainable, then I expect them to increase their salary somewhere between 90 to 96 lacs p.a. in FY20
  • Playing devil’s advocate, this linear increase in promoter’s salary YoY may sound too good to be true. It could either mean over-confidence or some sort of manipulation of the numbers.
  • On the other hand it can also be considered as normalization of the remuneration relative to peers ( for ex: Smruthi Organics where they have revised the actual salary - not ceiling - from 84 lacs p.a. to 1.44 cr. p.a. when PAT is around 7 cr which is not far from Auro Labs)

Either ways, I continue to watch their performances cautiously to observe any anomalies that negates the investment rationale.

On a side note, RACL Geartech is part of my tail portion of the pf and am still researching on it. Maybe u can do similar exercise as above for RACL to see if it is truly anomalous.

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