Financial services conglomerate Paytm has no plans to expand internationally or make any acquisitions, the company management told shareholders on Friday, even as it reiterated its plan to turn operationally profitable by September-end 2023.
Speaking at the company’s first annual general meeting, Paytm managing director and chief executive officer Vijay Shekhar Sharma answered questions on the company’s depressed stock price, when the company’s shares will reach the issue price of Rs 2,150, and when it will achieve profitability.
“There is a difference between a small company becoming profitable and a big company becoming profitable. Our ambition is to be a large-scale company and become profitable,” Sharma said, speaking largely in Hindi, in his response to shareholder questions on profitability timeline. Paytm’s losses widened to Rs 644 crore in the first quarter of FY23 from Rs 380.2 crore in the corresponding quarter last year, although its revenue increased over 86% for the same period. Paytm shares closed at Rs 771.85 on Friday, recovering 4.66% over the last month.
Sharma said the company was on track to becoming profitable by September 2023. “Till 2019, the company was focused on expansion, after which it focused on monetization through its payments and lending divisions,” Sharma said. He attributed the depressed share price to poor investor sentiment and macroeconomic factors, adding the company did not have any influence in managing the stock beyond its focus on profits.
“From the shareholders’ letter, we see that the definition of profitability has been modified. We do not support companies redefining how profitability is determined to suit individual needs,” Hetal Dalal, president & chief operating officer, of Institutional Investor Advisory Services (IiAS) said.
In a shareholder letter earlier this year, Sharma had said the company would aim to achieve operational profitability, which he defined as Ebitda before Esop costs. Ebitda is short for earnings before interest, tax and amortization and Esop stands for employee stock options.
Sharma obliquely addressed concerns over his remuneration by reiterating that his stock options that were granted in FY22 will not vest till the company hits the IPO market cap. Sharma’s remuneration of Rs 796 crore including stock options granted in FY22 was one of the resolutions put up for vote ahead of the AGM. Proxy advisory firms have questioned the grant of Esops to Sharma, since he is practically a permanent director on the board, and in light of Paytm stock’s abysmal performance.
Sharma is not classified as a promoter, but he is the founder of Paytm, owing close to 14% stock in the company including through his family trust.
Sharma said the company did not want the distraction of expanding abroad, although he noted that Paytm was already in Japan through its investment in Softbank-backed PayPay.
“We don’t have plans to expand internationally in the short and mid-term. We want to stay focused on achieving profitability and gaining revenue. There is a lot of market to grow in payments and in credit in India. We don’t want any distraction,” Sharma said, adding that the company may think about international expansion in two or three years.
Group chief financial officer Madhur Deora said there were no plans to make any acquisitions in the short and medium term.
“We are more builders than buyers,” Deora said, noting that it was easier for the company to build for huge scale than acquiring it.
Ahead of the AGM, shareholders voted on five ordinary resolutions on adoption of the financial statements of FY22, reappointment of Sharma as MD and CEO; and the reappointment of Deora as group CFO, president and executive director; reappointment of Ravi Adusumilli to the board; contributions to charitable entities; and two special resolutions on the remunerations of Sharma and Deora. The company did not disclose voting results till press time.
While Alibaba group owns close to 25% stake in the company, Paytm also has other investors such as Softbank, Elevation Capital and CPPIB. Sharma owns close to 9% stake in Paytm, and another 5% through a family trust.
Three proxy advisory firms had advised investors to vote against the reappointment of Sharma and Adusumilli, while raising concerns over management compensation.
“Vijay Shekhar Sharma has embedded himself into the company through the company’s Articles of Association – he has board nomination rights even if he gets diluted by more than 50% from his current 8.9% equity stake, as long has he either holds an executive position or 3.1 million shares aggregating not less than 2.5% of the Paytm’s paid-up share capital. He is also not liable to retire by rotation, which makes him effectively a permanent director. How then, is he any different from a promoter? And to this extent, giving him stock options is not aligned to the regulatory thinking – Indian regulations do not allow promoters to be granted stock options,” Dalal of IiAS said.