Paytm Shareholder Vote Shows Vijay Shekhar Sharma Is On Borrowed Time

The shareholder vote at Paytm's parent One 97 Communications Ltd. sends an important message to Vijay Shekhar Sharma, the founder, managing director and chief executive officer; and Madhur Deora, the chief financial officer: they are on borrowed time and may not have more than a quarter to show profitability.

The results flag a revolt by the new public institutions—those who invested after the listing—over the remuneration being paid and approved for the CEO and the CFO.

To be sure, shareholders passed all resolutions based on the total number of the votes. But that's half the story. More than two-thirds of the public institutions voted against the remuneration. That came after three investor advisory firms suggested voting against the appointment and remuneration of CEO and the CFO.

Of the total votes cast by public institutions, 75.6% were against the resolution seeking approval for Sharma's remuneration and reappointment as MD & CEO. And 75% of the votes case by public institutions were against the Deora's pay.

To put things in perspective, 85.7% of the pre-IPO investors are locked in and cannot sell for a year since listing. These investors, who held stake in the Paytm's parent before it went public, include private equity players, SoftBank Group Co. and Alibaba Group.

This time, they have voted in favour of the resolutions on Sharma's and Deora's pay. But once the lock-in ends, they could exit and the market forces will determine the future of the management and remuneration.

That has already played out in the case of Zomato and two large pre-IPO investors have sold stake.

And Paytm has just a quarter to ensure that the pre-IPO investors get a decent exit, which is possible only if the financials improve by quarter ending September.

The one year lock-in ends on Nov. 14 for Paytm's parent and over 55 crore shares will be available to be sold in the open market from Nov. 15.