Lalithaa Jewellery promoter doubles ups as brand ambassador, fee raises governance worries ahead of IPO

Lalithaa Jewellery promoter M Kiran Kumar Jain was the only brand ambassador the company had

IPO-bound Lalithaa Jewellery Mart has come under scrutiny from corporate governance experts after its draft documents revealed unusually large payments to promoter M Kiran Kumar Jain for acting as the company’s brand ambassador.

According to the draft red herring prospectus filed with the Securities and Exchange Board of India (SEBI) on June 13, Jain was paid Rs 50.2 crore in FY24 and Rs 9 crore in FY22 for promotional duties. These payments made up more than 60 percent of Lalithaa’s total marketing spend of Rs 82.5 crore in FY24. In FY22, his fee accounted for 30 percent of the  Rs 29.5 crore spent on advertising and promotion. No fee was paid in FY23 but he did get compensation as the company's director.

The disclosure has sparked concern among market watchers. While it is not uncommon for founders to be the public face of their businesses, experts argue that separately monetising that visibility, especially if done without independent valuation or arm’s-length benchmarking, raises questions about governance and alignment of interests.

“Promoters are de facto the face of the company for customers, investors, vendors, banks, etc, and they shouldn't charge any additional fee for promoting the brand,” said Shriram Subramanian, founder of proxy advisory firm InGovern. “Taking a fee misaligns the incentives and creates a conflict of interest. Such transactions are not in the right spirit of corporate governance.”

Lalithaa Jewellery had not responded to Moneycontrol’s queries at the time of publishing of the article.

To be sure, Jain did not draw a brand ambassador fee from the company each year. In FY 23, he did not draw such a few, but instead received Rs 3.36 crore as director remuneration. Similarly, since ending the brand ambassador agreement he received Rs 12 crore as director compensation in FY25

Promoter is the face of the brand

While the DRHP said all such related-party transactions are conducted on an arm’s length basis and contain commercially reasonable terms, the company cannot assure investors that it could not have achieved more favourable terms had these been done with unrelated parties.

The DRHP confirms that the Chennai-based jewellery retailer does not engage any other celebrities or influencers for brand endorsements.

“We have not contracted any brand ambassadors and 100 percent of our advertisements feature our Promoter, M. Kiran Kumar Jain,” the company said in its filing.

This strategy contrasts sharply with competitors. Kalyan Jewellers, for instance, has a line-up of well-known ambassadors, including actors Amitabh Bachchan and Nagarjuna. Joyalukkas features celebrities including cinema stars Kajol and Hrithik Roshan.

The draft documents said this brand ambassador deal with the promoter has been terminated.

"Subsequently, the aforementioned brand endorsement agreement with our Promoter M Kiran Kumar Jain was terminated by our Company with effect from April 01, 2024. We cannot assure you that such transactions, individually or in the aggregate, will always be in the best interests of our minority shareholders and will not have an adverse effect on our business, results of operations, financial condition and cash flows," the DRHP said.

Lalithaa Jewellery’s is planning a  Rs 1,700-crore IPO, comprising a fresh issue of  Rs 1,200 crore and an offer for sale of share worth Rs 500 crore by Jain. Proceeds from the IPO are intended to fund 12 new stores and for general corporate purposes.

The compensation to Jain should be evaluated in light of the promoter's existing entitlements — both as a shareholder and as a director, experts said.

“From a corporate governance standpoint, this transaction raises red flags, especially if the individual involved lacks prior experience and if no independent valuation report has been obtained,” said a Mumbai-based capital markets lawyer on condition of anonymity. “It brings to mind cases like Adam Neumann at WeWork, where conflicts of interest led to reputational damage and regulatory pushback.”

With investor focus sharpening on governance practices ahead of public listings, disclosures such as these could weigh on market sentiment and impact the valuation appetite for the offering, experts noted.