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

Investor advisory firm IiAS has recommended the reappointment of Vijay Shekhar Sharma as managing director and managing director of Paytm owner One97 Communications.

Institutional Investor Advisory Services, which provides voting recommendations on shareholder decisions in Indian listed companies, has issued a remuneration warning to Paytm group chief financial officer Madhur Deora as he advocates his appointment as a full-time director-designate as managing director, president and group. Chief Financial Officer for five years from 20 May 2022.

One97 Communications shares fell 4.65 percent to close at Rs 787.15 on BSE on Friday.

IiAS, in its report dated August 9, said One97 Communications’ share price has fallen 63.6 percent from its issue price of Rs 2,150 apiece, resulting in asset destruction for shareholders, and the company has reported a cash loss of Rs 1,200 crore in fiscal 2022 and losses in the first quarter of FY23 are high.

“Vijay Shekhar Sharma has previously made several commitments to make the company profitable, but these have not materialized. We believe the board should consider professionalizing the management,” the report states.

IiAS raises concern that Sharma is not bound to retire on rotation.

“He (Sharma) will get board tenure if he continues in a non-executive role after the end of his term as CEO,” the report said.

The One97 Communications (OCL) board approved an annual remuneration of Rs 4 crore to Sharma along with benefits of up to 25 per cent of the remuneration, two vehicles and related expenses, utility costs and other expenses in respect of the company’s rented accommodation and club membership.

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

The remuneration is part of OCL’s annual general meeting resolution, to be held on 19 August.

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

The consultancy said Sharma was awarded 46.5 per cent of the entire share option pool, which is equivalent to 3.2 per cent of the outstanding share capital.

“There is no disclosure of the vesting terms of the stock option grants and thus no alignment with shareholders’ interests. His total remuneration is higher than the remuneration level of all CEOs of S&P, BSE, Sensex companies? and most of these companies are profitable,” IiAS said .

It added that the company is seeking shareholder approval of the proposed remuneration as the minimum remuneration that will be paid to him even if the company continues to report losses.
“We also do not support the reappointment of Vijay Shekhar Sharma as CEO. Therefore, we are unable to support the decision,” the report said.

While Paytm did not comment on the IiAS report, a Paytm official said on condition of anonymity that the proxy firms advise only the institutions that have subscribed to their services.
The source said that while all institutions like MFs (Mutual Funds) and FPIs (Foreign Portfolio Investors) invested in Paytm are following the recommendations of the proxy advisory, it will have no bearing on the final outcome of Sharma’s reappointment as institutional investors account for 6.6 per cent. of the total shareholding.

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

“He (Deora) was awarded stock options with an exercise price of Rs 9, which is at a deep discount to the market price. It is unclear whether these options have performance-based vesting conditions and whether they are consistent with the long-term interest of the company and its shareholders. There is no clarity or cap on future stock option awards,” the report said.

IiAS has opposed the reappointment of Elevation Capital’s 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 . percent of board meetings.

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

“We express concern over the issues raised by the auditors, that loans and advances have had delayed repayments and that the company, despite reporting staggering losses, proposes to spend Rs 100 million annually on charitable donations,” says the report.

IiAS said the justification for the proposed contributions of up to Rs. 10 crore is unclear as the company continues to incur losses.

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