Thanks to Nirav Modi and Mehul Choksi, there is complete disenchantment for jewellery stocks. They have become almost like a taboo and no one in their right minds are also recommending them.

And in this air of disdain and doubt for the sector and its promoters that Tribhovandas Bhimji Zaveri (TBZ) passed a resolution at its AGM that it will hike pay for its promoter – Shrikant Zaveri and two daughters-copromoters – Binaisha Zaveri and Raashi Zaveri.

Shrikant Zaveri will get a basic salary of Rs.7.26 crore and the two daughters will get Rs.3.73 crore each for two years, starting 1^st Jan, 2019. The three promoters are also entitled to commission and increment of 20% from April 1, 2019. This is a HUGE pay hike given the take-home of Rs.2.40 crore they each have currently.

This means there is a total outgo of Rs.14.70 crore, which is almost 70% of its Rs.21.30 crore net profit for FY18.

What is irking is that the promoters are taking away so much of the pie when the industry as such is reeling under a crisis. When it’s a family-run, privately held business, such behavior is normal but for a public limited company, they are most certainly answerable to the stakeholders.

The promoters have tried to smoothen the ruffled feathers by saying that this proposed Rs.14.70 crore per annum will be paid to the promoters only if sufficient profits are generated as per requirement of Section 197 read with Schedule V of the Companies Act, 2013. But that is not convicning at all; it casts a doubt over the intentions of the promoters.

In fact the company had conducted an earnings concall on 28^th August and not surprisingly, the first question was about this pay hike.

Binaisha was asked specifically about the justification for this ostentatious pay hike. When an industry giant like Titan, with a PAT of around Rs.1100  crore, pays its top boss a total of Rs.5 crore, including all commissions, what justification is there for TBZ, with a 5-year cumulative profit of Rs.85 crore, planning to pay its promoters almost Rs.15 crore?

Of course Binaisha Zaveri gave the standard answer – “So this is as per Section 197 of the Companies Act and the revised Schedule, the total managerial remuneration payable by a public company including the MD and the Whole Time Directors shouldn't exceed 11% as you know and it will be restricted to that and we are just taking the minimum pay as of now. If there is no commensurate profit we will not take that extra profit. It is as of the same as of last year.”

Well, the issue here is not legality but the fairness – is it right for the promoters to take away so much? From the minority shareholders point of view, this is gross misuse of money earned when it can be used to plough back into the company for further growth or maybe reward the shareholders.

Thus TBZ shareholders are caught in a bind – if the company earns more profit, that’s good but what is the point of that “good” if the increased profit will go into the pockets of the promoters? Did the company go public so that the promoters earn more?

Based on the current salary too, what we are seeing is that promoters are taking 30% of the profit, that too when they have not recovered their IPO price even –currently stock is traded at almost 60% discount to IPO price of Rs.126. The first quarter was dismal too. Thus what’s the point of the promoters to pass the enabling resolution for a pay hike? The TBZ family, even now is taking home over Rs.7 crore as salary. How is such a huge take-home right when minority shareholders are losing money?

There is really no hope of shareholder activism working in TBZ as promoter holding is at 74.12% while institutional holding is less than even 2%.

Once again, another jewellery company is making plans to use shareholder funds for personal enrichment through ostentatious remunerations.

We cannot help but wonder if it is the genetic make of jewellery companies to always cheat minority shareholders, with their interests always taking precedence, come what may, at any cost. At least that is what the past trends have indicated…..