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Call for CEO change hits Paytm

Paytm said its loan disbursals in July grew fourfold to 2.9 million. However, the total loan value grew more than sixfold to  ₹2,090 crore. (Photo: HT)Premium
Paytm said its loan disbursals in July grew fourfold to 2.9 million. However, the total loan value grew more than sixfold to 2,090 crore. (Photo: HT)

  • Shares of One97 Communications, the parent of Paytm, fell nearly 5% on Friday, following a report by an advisory firm opposing its chief Vijay Shekhar Sharma’s reappointment as chief executive and raising doubts on the company’s path to profitability

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Shares of One97 Communications, the parent of Paytm, fell nearly 5% on Friday, following a report by an advisory firm opposing its chief Vijay Shekhar Sharma’s reappointment as chief executive and raising doubts on the company’s path to profitability.

Separately, in a statement to the exchanges on Friday, Paytm said its loan disbursals in July grew fourfold to 2.9 million. However, the total loan value grew more than sixfold to 2,090 crore.

“We continue to work with our partners to review the evolving macro environment, and, accordingly, slight moderation may be expected in our growth. That said, we continue to see ample growth and upsell opportunities in this business and are focusing on the quality of the book (given the possibility of macro headwinds)," the disclosure noted.

However, this was not enough for Paytm’s shares to recover. Shares of Paytm fell 4.82% to 786 on BSE.

The company’s shares came under pressure after Paytm’s proposal to reappoint Vijay Shekhar Sharma as the chief executive officer for another five years was opposed by advisory firm Institutional Investor Advisory Services India Ltd (IiAS).

In a detailed report, the advisory firm also flagged the remuneration decided for the post.

Sharma’s FY23 remuneration is estimated at 796.28 crore, comprising 21 million stock options at an exercise price of 9, a deep discount to the market price on the grant date (fair value spread across the vesting period), the IiAS report noted. He was also granted 46.5% of the entire stock option pool, equalling 3.2% of the outstanding share capital. But there is no disclosure regarding the vesting conditions, the report said.

“His overall remuneration is higher than the remuneration levels of all S&P BSE Sensex companies’ CEOs—and most of these companies are profitable. The company is seeking shareholder approval for the proposed remuneration as minimum remuneration—which will be paid to him even if the company continues to report losses," the report pointed out, opposing his remuneration.

The proxy adviser also opposed a proposal to reappoint Ravi Chandra Adusumalli as director. Adusumalli is the founder and managing partner at Elevation Capital (formerly SAIF Partners), an early investor in Paytm.

“We note that Ravi Chandra Adusumalli is a member of the audit committee. We raise concern over the issues raised by the auditors, that loans and advances extended have had delayed repayments, and that the company, despite reporting staggering losses, proposes to spend 100 million ( 10 crore) annually on charitable donations," the report noted, also criticizing Adusumalli for attending less than half of the board meetings in FY22.

While supporting Madhur Deora’s appointment as whole-time director, the report raised a red flag over his remuneration.

“We estimate Madhur Deora’s remuneration at 358.5 million ( 35.85 crore) for FY23, which is high for the size and performance of the business and not in line with peers," it stated.

Deora has been associated with Paytm since 2016. He was previously with Citigroup Global Markets India.

IiAS further said in the report that since listing, the company’s stock price has fallen by 64% (from the issue price of 2,150), resulting in wealth destruction for shareholders.

“Vijay Shekhar Sharma has made several commitments in the past to make the company profitable. However, these have not played out. We believe the board must consider professionalizing the management," it said.

Paytm’s net loss widened to 644.4 crore in the June quarter against a loss of 380.2 crore in the corresponding quarter of the last financial year.

The IiAS report also said that it is concerned about loans (including interest) aggregating 106.8 crore to five entities, where repayments have been delayed. The nature of the relationship with some of these entities is unclear, it added.

Earlier this week, SoftBank Group Corp. said it has marked down its investment in Paytm by $400 million for the quarter ended June, adding to its overall loss of $23.1 billion for the period.

The technology firm’s investment cost in One97 Communications was $1.4 billion in 2017, made through a mix of primary and secondary share purchases.

The fair value of its investment stood at $1 billion at the end of 30 June, according to its financial statement, indicating an on-paper loss of $400 million.

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