Davos 2023: Paytm's Vijay Shekhar Sharma Says Proxy Firm's Advice On ESOPs 'Ill-Timed'
Sharma says 'everything was done extremely transparently and clearly in public space'.
Paytm founder Vijay Shekhar Sharma called the advice by a proxy advisory firm "ill-timed" after it raised questions on his stake in the parent firm, One97 Communications Ltd., as well as the employee stock options granted to him by the company ahead of the initial public offering.
Sharma is not classified as promoter, according to the stock exchange disclosure.
As a non-retiring director, Sharma chairs the company's board and has the right to a board seat if he holds at least 2.5% stake. Effectively, he enjoys the rights of a promoter without the responsibilities and restrictions, Institutional Investor Advisory Services Ltd. said in a blog on Friday.
"If you remember, there was a time when there was a huge public discussion around voting to get approved for being even a CEO, including my every line item of, I am sorry to say, ill-timed advice," Sharma told BQPrime's Niraj Shah on the sidelines of the World Economic Forum in Davos.
The Paytm chief executive officer was responding to concerns raised by IiAS on his eligibility to receive employee stock options granted to him.
In August last year, the advisory firm flagged Paytm's proposals to reappoint Sharma at the helm and offer higher pay than any of the Sensex 30 chief executives.
"It was advice that day also, which is what was then. I don't know what this advice constitutes as today's context," Sharma said.
He added that "everything was done extremely transparently and clearly in public space, including and not limited to the very appointment".
Watch the full conversation here:
Edited Excepts From The Interview
So, firstly, I mean, you are a veteran of Davos as well, is the chatter around India a lot higher this time around than what you have seen in the past and why so?
VS Sharma: It is overwhelmingly higher. Overwhelming higher because it seems that not many other countries have participated or not so much of excitement in the world beyond India, in a sort of, let's say recession versus you know, the growth economy story and then one thing that surprised me is something else. Nobody is talking about U.S. I think India is more because we are there and the volume of people and number of let's say, promenade presenters etc. are very good and we have a country we would be talking but what surprised me that nobody is talking about U.S.
Even in the sessions?
Even in the sessions. I mean, there is no U.S. story.
Why do you think that's the case?
Less people probably. They have started to recede from here, or the attendance of who's here from U.S. If you just count the kinds of people they are there, but how many places can they be or what they can talk.
You would have met a lot of business leaders and investing people as well. What is it that has been asked about your business the most over the course of the last three days?
VS Sharma: Everyone wants to know what the lesson was of the last year. While, because one thing that I am very happy to say and I tell them proactively that is that we are in the last year we discovered the commitment towards let's say, prudent attention towards quality revenue and revenue that contributes to profitability has, during the profitable results internally in different categories and overall, we are hoping that we will announce profitability very soon. Now this question that oh, so what was the last year like. Oh, I get to see you here. So how has it been. You are listed, what's like to be listed. A lot of people ask for what is like to be listed and private public is actually like a teenager to adulthood, I can say this. It is like an 18 years old.
So, you obviously had a need to list as well. But given a choice, would you rather have preferred that you are not listed because the businesses are getting discovered, so to speak?
VS Sharma: It was perfect timing. There's nothing wrong with it. The timing was perfect.
I know the timing was perfect, you also needed to do it, but I am just wondering, given you had a choice. Even if there was not a need, you would have still done it?
VS Sharma: I would have done it for two reasons. Well, we are an old organisation. We are a 20-year company. Paytm is a 10-year-old business, out of which let's say five years before we got the first round of equity funding. So, now I have a theory of 333, three years to discover product market, three years you figure out what monetisation is and next three years as you start to build free cash flow and we were in that six plus years edge anyways, so we knew that our monetisation and profitability is coming forward. So, for the newer investors, there could have been a dramatic growth in profit and revenue, which we still are clear about in that it is what we are delivering actually in the market. We would not have expected that public markets overall globally would discount technology so much. This is what we did not expect but this is exactly what I'm trying to say that why would I not want to list because the market was sort of, you know, inviting companies to list, there was spec rush, if you remember. I mean, everybody was telling us why you are not listing and at the same time the company and the revenue maturity was showing up.
Now, so in a slightly uninitiated way, but I'll tell you why, per se from a perspective of one the fact that people who visited all for the last 20 years that outdoor public markets like to ensure that the first set of shareholders make money over a period of time, which in the case of not just yours, but all the platform businesses hasn't happened, part one, also because for Indian investors largely, platform businesses were a completely new kettle of fish. They are still to be discovered; true value is still to be discovered all of that.
VS Sharma: I would rather be the benchmark of information and the method of building a business than to another benchmark’s followers, in any business you have done like this. So, if we were not listing let's say hypothetically, we would I mean, I am saying that it's like a teenager going to adulthood, and I really mean it that public market has done good to the company. I can tell you post-facto, it is an even more likable factor there, and more likely that we would have listed than a pre-facto I would have said. Pre facto, we do not need cash. We have money in the bank.... For post-facto, the company’s maturity comes in different ways. I don't have to talk to my team as if this is important because we as few of us are driving. They know this is what the company needs to do. They rally together as a team, is dramatically incredible when everything is visible publicly. Earlier, not everything was visible publicly.... Certain expectations of let's say, a board meeting would be expectation given to a set of people, but not everyone. Like now everybody knows. So, the company is rallying around the mission, has been incredibly fulfilling. In fact, while the year has been stressful, let's say, from a stock market perspective like you were talking about, but from the execution standpoint, we have never executed better than before. In fact, we are in the highest performing state of our company ever existed. That is what I profoundly say. Not just as a business in terms of customer acquisition or expansion of platform or buildup of technology, it is also revenue, quality revenue, profit, use of free cash attention, what happens forward. Now, in 2010-11, when I started Paytm as a business item and by the way, we were free-cash generating company at that time. So, we had raised about 67 crores of equity and in the bank we had about 127 crores, which means that we were earning free cash. So, we were generating free cash and that time again the teams used to be differently looked at, the teammates were looked at like you are building in KPIs, Ebitda, expansion, growth, new market business and that there's a cycle that is coming back. I am very happy to say that as a company, as a founder, a very fulfilling feeling is when you build a business that grows, expands, finds its maturity, consolidates the position of the market, gives an opportunity of new business, grows, matures. So, this is my third or fourth cycle in the same company. So, for me, it's very fulfilling.
You mentioned the path to profitability. There is a belief that with a focus on merchant subscription services, payment processing and lending increasing at your firm as well, as some of the others. The path to profitability might actually be shorter. You agree?
VS Sharma: I have said it also that I think we underestimated, and I can tell you why we underestimated because in a market where merchant does not pay government is of mentioning sources to the merchant. Why would merchant pay and in fact since our sale team would want to believe that this devices business was not exist, because why would merchant pay, why would they make a business model, then came this Covid where if it was 5% or less contribution of payment from the shop, you do not want to discover the reconciliation, the data analytics, the settlements etc. obligations you like okay ‘4, 5 % aa raha hai’, what would I do. But as soon as it crosses 35 or 40% chasm, you now need on the shop, a person whose phone is on the counter, every payment is done and SMS is not going to be delivered, you know that and then the inbox will be filled. The phone will be locked in the shop. We said here's the device. So, in the local language, helping shopkeeper take mobile payment to genetic high is amazing, and I want to tell you this that we started as a company where our mission was to drive payment in the country. Our ambition was not just that we would be the only one. So, if there was a time when Paytm which was led by wallet and then QR, there was a time when we were asked that would you expand your QR network for the UK so that we will also participate, we said yes, we would like to do it because we are here to champion mobile payments. We are here to champion inclusion. We are here to champion the byproduct of payment which is credit disbursement. So happy to say that we have always remained at the forefront of what small merchants need, small shops need and then this becomes an industry wide innovation. So yes, you are right, the dramatic upswing or the upswing in subscription revenues which we have now even learnt next level what the shopkeeper will need is what is the reason that we are going to see, you are going to see and revenue and profitability become better than what we envisaged and this happened in the last two years. That's why even at the time of IPO we will be able to forecast what we would not have.
So, unless I understood it very wrongly. This 333 mantra that you follow, you reckon that the path to profitability is for sure.
VS Sharma: It is written inside. It is written inside it, I actually won’t tell you, no product marketing should be continuously haggling with the product market fit. If you're not fit in three years, let me say this. That’s why we have done many businesses and we are very happy to say that we don’t do more business than we did earlier. But we just keep rolling. Our commerce business and find a good fit. I was like okay, it doesn't matter. Our ticketing business found product market fit we are all in.
This incentive from the government, 2,600 crores is a good thing but a few people believe that it doesn't cover a wide share of costs. What's your sense?
VS Sharma: It covers a large share of costs and gives us profit.
You are happy with this. You would have hoped for more?
VS Sharma: We are a bank. Paytm is a bank. The Paytm Bank is the beneficiary directly, runs your pay system directly, unlike in many cases. Banks don’t hand off these two apps and they will keep some source but more, this is 2x of last year.
Yes, but still, I am asking because a lot of people believe so.
VS Sharma: Why would I say any number is enough. I mean, I am a businessman. For the same product, I would say that it is enough to cover the costs.
It's the difference between being a rational businessman being greedy. I am just wondering whether you believe in it.
VS Sharma: It is very good money. $25 million of very good commitment by government. I can tell you now; no payment network will have that kind of commitment. Guess what? In this country, the reason for the success of mobile payment is the dramatic commitment of this kind of money from the government and incredible support of regulators and championing of MPCI to deliver on those and then all industry is what it is today. I mean, I cannot tell you, I am happy and elated to say that it was double that of last year and as an industry, I can say that we were thankful to the cabinet and the set of people who just worked on this programme and approved of it. So yes, this is good.
Now, from an investor's perspective, two or three things one, is the path to profitability. Two, is the mixed feedback that came about the buyback decision as well and three, you know, the advisers, for example, there is an IIS report, you know, and I copied some of those things from the note as well where the advisors have questioned the nature of your role in Paytm wherein they say that you enjoy the rights of a promoter but not the responsibilities or restrictions?
VS Sharma: I am not sure what is being said everything is there is a shareholder approved. It is a public shareholding listed company; it is not two people to decide it. If you remember there was a time when there was a huge public discussion around voting to get approved for being even a CEO, including my every line item of I am sorry to say, ill-timed advice. It was advice that day also, which is what was then I don't know what this advice constitutes as today's context.
The threshold for being the Chairman 2.5% very low, designed to keep you there, while as for the others, it's 10%.
VS Sharma: Look, let me tell you one thing. Everything is very transparently done. Everything is very shareholder voting wise done. So, what to say here.
Do large shareholders reach out to you and ask you about why is this that the decision has been taken or is everybody fairly happy?
VS Sharma: I am sorry to say, it is wrong timed to say that it all was when this voting was happening in writing and I don't know what it means to get this again today. Again, meaning when there is no event of discussion of this. You see what I am trying to tell you. I know that this is all advice that came at one point in time, which you did went to all for institutional investors. Let's say this, I remember there was a 99.7% kind of vote that happened, which includes institutional investors who would have anyways reached out and talked about it everything else. I mean, 99.7 is not a pre or post IPO kind of event. So, I am sorry. I have only one answer to one question to say, or one answer to give that everything has been done extremely transparently and clearly in public space, including and not limited to the very appointment.
Okay. Final two questions. One is on the excitement around the Government of India initiatives, and I would want you to think of it not from a perspective of a Paytm only, but from a perspective of somebody who's watching this ecosystem, one is going ONDC and what it could do. The second is on ONEC/ONAK and what that could do as well and you know, this whole payments ecosystem has a lot of part to play in the second one. So please talk about it.
VS Sharma: Look, let's understand the payment business, which is about bringing the smallest of the shop onto the network, which is digital or bringing them existent unidentified on a map of political economy is sort of a great thing because it brings the heartbeat and identify it. Now the real business is when they do business, they get credit, the business model of Paytm is, if you notice, practically is that you solve for payment, you extend the enabling the business, enabling the commerce, so payment, enabling, commerce and credit. All these platforms that you are quoting are exactly democratising that or even wider level. So that's why we are a big supporter of ONDC. We believe that this is an opportunity for India, opportunity for small shops to come up again, I mean, get distributed. If ONDC is successful, which I believe that it will be. It'll be systematically one of the most important platforms in the country. If you were to look at let’s, say, payment is a tree, then ONDC is a fruit of it.
What about the other aspect which is, to my mind, revolutionary in the sense of giving credit-based on cash flows and not necessarily on collaterals? How important would that be for the Indian small unorganised merchant ecosystem?
VS Sharma: This is the reason that credit has not reached that far and wide because those people do not have any assets or some book to show or formal audited numbers to show. Those small shops will inevitably get credit only by payment flow because otherwise they get credit from loan sharks and I mean, Paytm disbursement is exactly that. I mean, the growth that you are seeing here, and hopefully if those lenders whose book that is going in, you are able to ask them to book performance it's very clear, evident example of that in this country, in our country, the small guy did not get access to credit. His sincerity to pay, his ability to pay was always there and he needed a solution that would solve for him because he wanted to solve for his access to capital. When he got access to capital, he sincerely paid back. So, in a day, let's say, if you are running a streetside shop, you will receive 1000 rupees collection, or a 700 rupees collection and you can give 100- 200 rupees a day. So technically the lender that was working with us is underwriting the future forward receivables because there is no other number that you could have got from that person and now because it is digital disbursement and collection, the cost are also so less that we can also make our fees that we get from them and they can also make the yields that they make on them and both of us should be happy. That is why the scale is showing up.