Paytm's ESOP cost was larger than its net loss in FY24

78% of Paytm's ESOP expenses in FY24 were due to the top brass

If Paytm had zero share-based payment expenses in FY24, it would have registered a net profit.

According to the company’s financials, its employee stock option (ESOP) cost during the fiscal rose marginally to Rs 1,466 crore while it recorded a net loss of Rs 1,423 crore.

This was not the case in FY23 — when its ESOP cost was Rs 1,456 crore and net loss came in at Rs 1,777 crore.

New-age companies like Paytm, Zomato, Delhivery and others have faced a lot of criticism in the past few years for making large ESOP grants to their top brass just before IPOs, which have since weighed on the profitability horizons of the firms.

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As ESOPs are typically structured to vest over a period of 4-5 years, these grants would continue to have a bearing on the financials over the next couple of years.

Paytm also revealed in its regulatory filings today that its ESOP costs are expected to be Rs 1174 crore in FY25, Rs 558 crore in FY26 and Rs 225 crore in FY27. However, these figures assume that all granted ESOPs are vested and no new ESOPs would be granted in the following years.

Another fact that emerged from the fintech company’s related party transaction filings is that its ESOP expenses on account of directors, key managerial personnel, and their relatives stood at Rs 1,138 crore — or 78 percent — of the total share-based payment expenses during FY24.

This regulatory classification of Paytm’s top brass includes founder and chief executive officer Vijay Shekhar Sharma and chief financial officer Madhur Deora.

According to a note published by proxy advisory firm Institutional Investor Advisory Services in early 2023, Paytm may be circumventing regulation to grant ESOPs to Sharma.

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Sharma became Paytm's largest shareholder last year, after he acquired a 10 percent stake in the company from AntFin through his 100 percent-owned overseas entity Resilient Asset Management BV, thereby increasing his holding to 19.42 percent.

While he isn’t classified as a promoter, he has rights akin to one, including a potential permanent seat on the board, IiAS said. “These provisions and structures give Vijay Shekhar Sharma ‘entrenchment’ similar to that enjoyed by promoter families in the more traditional companies,” it added.

Paytm had offered shares to the public at Rs 2,150 apiece at a market valuation of Rs 1.39 lakh crore. The stock has been on a downward trend since its listing in November 2021 and has fallen more than 83 percent to Rs 369 apiece, with market capitalisation dropping to Rs 11,491 crore.

The company faced a regulatory setback earlier this year as the Reserve Bank of India put stringent restrictions on its associate, Paytm Payments Bank (PPBL), which housed its payments wallet and bill payments business.