Paytm slips 5% as IiAS opposes Vijay Shekhar Sharma’s reappointment

Vijay Shekhar Sharma-led Paytm’s stock plunged 4.6% today after proxy advisory firm Institutional Investor Advisory Services (IiAS) stated that it is against his reappointment as managing director and is unable to support the company's upcoming resolution. In a report, it says it's also against the resolution on the high remuneration of the fintech major chief.

The stock opened gap down at ₹812.80 today as compared to the previous session close of ₹825.80 and fell to the intra-day low of ₹775.40 by 10 A.M, down 6.12%.

Paytm will hold its annual general meeting on August 19. The fintech major is seeking reappointment of Sharma as MD and CEO for five years from 19 December 2022. He is not liable to retire by rotation.

The proxy advisory firm has said Sharma will get “board permanency” at Paytm if he continues in a non-executive capacity.

IiAS says Sharma has made “several commitments in the past to make the company profitable, however, these have not played out”. Paytm board must consider professionalising the management, says the Mumbai-based proxy advisor.

“We take comfort in the board’s assertion that the company has an effective mechanism for succession planning for the orderly succession of directors and senior management personnel. We raise concerns that he (Vijay Shekhar Sharma) is not liable to retire by rotation, and that he will get board permanency if he continues in a non-executive capacity following the end of his term as managing director.”

The proxy advisor claims Sharma's annual remuneration is higher than those of all S&P BSE Sensex companies, most of which are profitable. “In FY22, the company reported a cash loss of Rs. 12 bn and losses in the first quarter of FY23 are high.” The Paytm stock has fallen 63.6% from its issue price of ₹2,150 since its listing on November 18, 2021, resulting in wealth destruction for shareholders, says the advisory company.

The IiAS estimates show Sharma is likely raking in remuneration of over ₹796 crore in FY23, which includes 21 million stock options at ₹9 exercise price, which is a deep discount to the market price on the date of grant (fair value spread across the vesting period).

Paytm is now seeking shareholder approval for the proposed remuneration as “minimum remuneration” – which will be paid to him even if the company continues to report losses. “We also do not support Vijay Shekhar Sharma’s reappointment as Managing Director. Therefore, we are unable to support the resolution,” says the report.

Paytm's consolidated loss for the April-June quarter of 2022-23 widened to ₹645 crore from ₹382 crore in the year-ago period. However, the digital payments firm posted an 89% growth in revenue in the first quarter at ₹1,690 crore from ₹891 crore during the same quarter last year.

Meanwhile, brokerages also have mixed ratings on the counter. Macquarie Capital Securities retains an “underperform” rating on the stock, with a target price of ₹450, implying a potential downside of 50%. CLSA, too, maintains a “sell” rating on the stock, with a target price of ₹650. Axis Securities, however, maintains a “buy” rating on the Paytm stock.

Meanwhile, the Paytm stock has been losing for the last three days and has fallen 6.01% in the period. The stock has underperformed by 5.54% today. At the same time, the benchmark Sensex is in the green, up 0.21%, while the sector remains up 0.53%. The stock is currently trading higher than 20-day, 50-day and 100-day moving averages but lower than 5-day and 200-day moving averages.