IiAS recommends against reappointment of Paytm MD, CEO Vijay Shekhar Sharma

Investors advisory firm IiAS has recommended against the reappointment of Vijay Shekhar Sharma as managing director and chief executive officer of the Paytm owner, One97 Communications.

The Institutional Investor Advisory Services, which provides voting recommendations on shareholders resolutions of Indian listed firms, has issued an advisory against remuneration for Paytm group chief financial officer Madhur Deora while favouring his appointment as a whole-time director designated as Executive Director, President and Group Chief Financial Officer for five years from May 20, 2022.

One97 Communications shares declined by 4.65 per cent to close at Rs 787.15 on BSE on Friday.

IiAS in its report dated August 9 said that One97 Communications' stock price has fallen by 63.6 per cent from the issue price of Rs 2,150 apiece resulting in wealth destruction for shareholders and the company has reported a cash loss of Rs 1,200 crore in the financial year 2022 and losses in the first quarter of FY23 are high.

"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," the report said.

IiAS raises concerns that Sharma is not liable to retire by rotation.

"He (Sharma) will get board permanency if he continues in a non-executive capacity following the end of his term as Managing Director," the report said.

The One97 Communications (OCL) board approved annual remuneration of Rs 4 crore for Sharma along with perquisites up to 25 per cent of the remuneration, two vehicles and related expenses, utility and other expenses in relation to the company leased accommodation and club subscription.

The board has also approved reimbursement of all legitimate expenses incurred by Sharma in the performance of his professional duties including but not limited to communication, travel and business entertainment expenses.

The remuneration is part of the OCL annual general meeting resolution scheduled to be held on August 19.

IiAS estimates Sharma's FY23 remuneration at Rs 796.28 crore, which comprises 2.1 crore stock options at an exercise price of Rs 9 which is a deep discount to the market price on the date of grant.

The advisory firm said that Sharma was granted 46.5 per cent of the entire stock option pool, which is equal to 3.2 per cent of the outstanding share capital.

"There is no disclosure regarding the vesting conditions relating to the stock option grants and thus, no alignment with the interest of shareholders. His overall remuneration is higher than the remuneration levels of all S&P, BSE, Sensex companies' CEOs ? and most of these companies are profitable," IiAS said.

It added that 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.
"We also do not support Vijay Shekhar Sharma's reappointment as Managing Director. Therefore, we are unable to support the resolution," the report said.

Though Paytm did not comment on the IiAS report, a Paytm official on the condition of anonymity said that the proxy firms only advise the institutions who have subscribed to their services.
The source said that even if all the institutions as MFs (mutual funds) and FPIs (foreign portfolio investors) who are invested in Paytm go by the recommendations of the proxy advisory it is not going have an impact on the final outcome on Sharma's reappointment as institutional investors account for 6.6 per cent of the total shareholding.

IiAS also found the remuneration of Deora to be on the higher side and not in line with peers.

"He (Deora( was granted stock options with an exercise price of Rs 9, which is at a deep discount to market price. It is unclear if these options have performance-based vesting conditions and whether they align with the long- term interest of the company and its shareholders. There is no clarity or cap regarding future stock option grants," the report said.

IiAS has opposed the re-appointment of Elevation Capital managing partner Ravi Chandra Adusumalli as a director on the OCL board as he has attended only 47 per cent of board meetings in FY'22 while directors should take their responsibilities seriously and attend at least 75 per cent of board meetings.

IiAS also said that Adusumalli is a member of the audit committee and there have been concerns raised by auditors.

"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 Rs 100 million annually on charitable donations," the report said. 

IiAS said that the rationale for the proposed contributions of up to Rs. 10 crore is unclear as the company continues to post losses.