Dilip Shanghvi takes 99% pay cut despite Sun Pharma's 27% earnings growth

Dilip Shanghvi
The founder and managing director (MD) of the country’s largest pharmaceutical firm Sun Pharmaceuticals, Dilip Shanghvi, took a 99 per cent cut in his remuneration in 2018-19 when the company’s earnings grew by 27 per cent. Meanwhile, the firm also guided for a low- to mid-teens growth in revenue for FY19-20 and said its research and development cost would remain at 8-9 per cent of sales. 

Shanghvi, one of the lowest-paid chief executive officers (CEOs) in India’s pharmaceutical sector, drew a salary of Rs 1 during 2018-19, the company’s annual report said. 

For the year ended March 31, 2019, he received perquisites worth Rs 2.62 lakh. The valuation of his stake (9.6 per cent in Sun Pharma) remained flat between March 31, 2018 (Rs 11,411 crore) and March 31, 2019, (Rs 11,039 crore). As on July 31, the valuation of his shareholding in the company stood at Rs 9,830 crore. 

For the last financial year, however, Shanghvi is set to earn a dividend income of Rs 63.3 crore as against an income of Rs 46.1 crore in FY18. This, however, is subject to shareholder approval. 

Among peers, Shanghvi was one of the lowest-paid CEOs. His remuneration in 2017-18 was Rs 3.36 crore (including a salary of Rs 2.79 crore). In comparison, Sharvil Patel, the MD of Cadila Healthcare drew a remuneration of Rs 25 crore, Nilesh Gupta, MD of Lupin had a remuneration of Rs 9 crore while G V Prasad, co-chairman, MD and CEO of Dr Reddy’s Laboratories had a remuneration of Rs 7.7 crore in 2017-18. While Gupta saw an 80 per cent drop in his remuneration for 2018-19 to Rs 1.8 crore, Patel’s remuneration remained the same. Prasad, however, took a 60 per cent jump in remuneration to Rs 12.38 crore. 

Shanghvi’s brother-in-law, Sudhir Valia, who recently stepped down as whole time director and would continue as a non-executive director of Sun Pharma, also drew a Rs 1 salary and the remaining remuneration in the form of perquisites. Valia’s remuneration in 2017-18 was the same as Shanghvi’s.

“Remuneration of Dilip Shanghvi and Sudhir Valia is Rs 1 each for the financial year 2018-19 and the remaining amount of Rs 262,800 and  Rs 79,200, respectively, pertain to notional value of perquisite, according to I-T Act,” Sun Pharma’s annual report said. 

The perquisites include house rent allowance, leave travel assistance, medical reimbursement, contribution to provident fund and such other perquisites, payable to directors, according to company policy, it noted. 

Shanghvi said in the annual report that Sun Pharma would continue to focus on optimising costs “given the tough phase the global generics in-dustry is passing through.”

The company posted a consolidated net sales of Rs 28,686 crore in FY19, a 10 per cent rise. Its consolidated net profit grew 27 per cent. 

The agreement with Shanghvi and Valia is for their present term are for a period of five years (April 2018 to March 2023) and remuneration for a period from April 2018 to March 2021 (for Shanghvi) and from April 2019 to March 2024 (for Valia). 

The pay cut came in a year, which saw Sun Pharma navigate through several allegations of questionable corporate governance practices. Its shares fell to a six-year low in January. In a damage control mode, the company had to announce that it would constitute a corporate governance and ethics committee to oversee corporate governance related matters. 

 The fourth quarter profit, however, saw a 52 per cent fall. The firm said the result was not comparable due to one-time impact of Rs 1,085 crore, owing to change in distribution strategy in India. 

Sun Pharma guides for low- to mid-teens revenue growth in FY20

Meanwhile, the company guided for low- to mid-teens growth in consolidated revenues for FY20, and said its R&D investments would remain 8-9 per cent of sales. This would mean a significant growth in R&D investments in FY20. In 2018-19, Sun spent 6.9 per cent of its sales on R&D as against 8.6 per cent in FY18. 

“Our R&D investments for the year were Rs 2,000 crore, targeted mainly at developing complex generics and specialty products. Given the intensely competitive nature of the US generics market, we continue to be disciplined in identifying future R&D projects for the generics market. Investments for developing the long-term specialty pipeline are expected to continue,” the firm said.

Shanghvi said in the annual report that Sun Pharma would continue to focus on optimising costs “given the tough phase that the global generics industry is passing through.” He said the company would focus on optimising its manufacturing footprint and try to strike a balance between current costs and future capacity requirements. 

Although the US generics industry continues to face pricing pressure, Sun Pharma feels the industry has started responding to these challenges by rationalising product portfolios and discontinuing non-remunerative products. These steps have been taken to ensure that generics products are able to generate reasonable returns to manufacturers, it said.

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