Paytm eyes 83% drop in ESOP costs by FY27

Paytm founder Vijay Shekhar Sharma

Paytm has set an ambitious goal to reduce its Employee Stock Option Plan (ESOP) costs to Rs 242 crore by the end of FY27, reflecting a substantial decline of 83 percent from Rs 1,466 crore in FY24.

In its recent regulatory filings, the company outlined a clear roadmap for decreasing its ESOP expenses over the next few years, with projected costs dropping to Rs 945 crore in FY25 and Rs 567 crore in FY26 before reaching the target.

This strategy assumes that no new ESOPs will be granted and that existing options will fully vest.

The reduction in ESOP costs marks a significant shift for Paytm, especially compared to the Rs 1,456 crore recorded in FY23 and Rs 1,466 crore in FY24. The company also noted that lapses in unvested ESOPs due to employee attrition could lead to reversals of costs in the quarter they occur, potentially easing financial burdens further.

In its latest earnings report, Paytm indicated that its Q2 FY25 ESOP cost was down to Rs 218 crore, attributed to lapses from employee separations.

“Our indirect costs have come down by 17% QoQ to Rs 1,080 crore due to a reduction in employee costs (down 13% QoQ), marketing expenses, and the absence of certain one-time expenses incurred in Q1 FY25,” the company said.

As of October 18, 2024, Paytm had granted 3.5 crore ESOPs that remain unvested and 20 lakh ESOPs that are vested but unexercised.

Alongside its plans to reduce ESOP costs, Paytm claims to be actively leveraging artificial intelligence (AI) for process automation. The company has highlighted substantial cost savings achieved through these initiatives.

During an earnings call to discuss the Q2 results, Founder and Managing Director Vijay Shekhar Sharma emphasised the transformative impact of AI on the company's operations.

“In the last 10 months, we reduced our manpower support costs by 60% because of Artificial Intelligence. AI will become the new standard, and as we leverage it further, we will achieve enhanced profitability and cost efficiency,” Sharma stated.

Paytm's early adoption of AI has resulted in improved productivity within its tech teams, leading to a 23% reduction in employee costs since Q3 FY24. The company stressed that continuing cost discipline will remain a key focus area as it strives for greater efficiency and profitability.

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