PayTM (One 97 Communications Ltd)

ripzc09 · April 16, 2025, 2:18pm

what does this mean for the company? is it good or bad ?

source: https://x.com/CNBCTV18Live/status/1912503301829951505/photo/1

Deven · April 17, 2025, 6:05am

It’s good. However note that it’s not absolute voluntarily, it was recommanded by SEBI.

Anyway it’s positive. It saves esop future cost and will be eps accertive in long term (if VSS taken 2.1 cr shares, share count will have increased, hence eps down). Their cancellation simply means future dilution is avoided.

However in Q4 FY2025 the ₹492 crore one-time expense will lower net profit temporarily. As per accounting rules: if unvested ESOPs are cancelled voluntarily by the employee, then the entire remaining unamortized cost must be booked immediately.

ValueV · April 17, 2025, 6:40am

This should also reverse the expense booked in earlier period. right?

Deven · April 17, 2025, 6:54am

No. As per my understanding esop expenses once booked, will remain in book.

ValueV · April 17, 2025, 7:17am

It should be, if they are unvested options (in perfect world!) but they are not for reasons below (from Gemini AI).

The reversal of past expenses for cancelled unvested ESOPs is related to the accounting treatment of the remaining unrecognized compensation, while the expenses already recognized are not reversed because they reflect the service provided by the employee before the cancellation.

As company did not mention that whether these were vested or unvested option (as IPO price as performance criteria was added later).

So this Q4FY25 also PAT -ve. whenever they are near to PAT - something just happens!!!

Thanks!

rpattabi · April 17, 2025, 8:43am

Absolutely. Perplexity explains:

Paytm founder and CEO Vijay Shekhar Sharma’s decision to forego 21 million ESOPs is primarily a result of regulatory pressure from the Securities and Exchange Board of India (SEBI), rather than an act of charity.

Context and Regulatory Background:

SEBI had issued show-cause notices to Sharma and Paytm regarding the grant of these ESOPs, stating that the issuance violated SEBI’s rules on share-based employee benefits. Specifically, SEBI rules prohibit promoters or large shareholders with significant influence over company decisions from receiving ESOPs.
Sharma originally held a 14.7% stake in Paytm before its 2021 IPO, which made him ineligible for ESOPs. To qualify, he reduced his shareholding to below 10% by transferring shares to a family trust, but SEBI still found the ESOP grant non-compliant.
After months of regulatory scrutiny and settlement discussions, Sharma voluntarily surrendered the 21 million ESOPs granted under the One97 Employees Stock Option Scheme, 2019. This surrender was part of a settlement with SEBI, which communicated the terms to the parties and gave them time to comply before passing a settlement order 2 4 6 7 10.

Financial and Corporate Impact:

The ESOPs surrendered were unvested and have been cancelled and returned to the ESOP pool.
This move results in a one-time, non-cash acceleration of ESOP expenses of ₹492 crore in Q4 FY25 for Paytm, with a corresponding reduction in future ESOP expenses.
The surrender is seen as a compliance measure to align with SEBI regulations rather than a voluntary philanthropic gesture 1 5 9 8.

In summary, Vijay Shekhar Sharma’s foregone ESOPs are a direct consequence of SEBI’s regulatory nudge and settlement process, aimed at rectifying non-compliance in ESOP issuance rules, rather than an act of charity.

Citations:

Answer from Perplexity: https://www.perplexity.ai/search/paytm-s-vss-foregone-esops-is-Sk6LVlTqSYyRvBjViYqweA

rpattabi · April 17, 2025, 4:11pm

How should one view the founder and CEO of Paytm?

He gifts himself ton of ESOPs while the company goes through trouble after trouble.
He isn’t averse to bend the rules to achieve his means. He was ineligible for ESOPs and yet he tried to work around the system. No wonder, with such a person at the top, Paytm is chronically non-compliant with the rules and got RBI’s punishment.

Does the CEO work in the interest of the shareholders?

Disclaimer: Invested

First_Principles · April 20, 2025, 7:12am

Right. In addition to the fact that SEBI nudged the decision and nothing about it was “voluntary”, there are also consequence of this cancellation on the balance sheet.

Will the ESOP cancellation be written back? Logically it should, but accounting rules do NOT usually allow a writeback of previously expensed ESOP charges.

This was a negative which became a positive by virtue of correction of the past negative. Lol.

It’s be interesting to see how this impacts the P&L going forward.

Disclosure: Not invested.

aainahatredtillend · April 21, 2025, 7:57am

Hello @rpattabi,

I have an opinion on why ESOPs are lucrative for founders of VC backed companies post the IPO.

When you run a company where you do not have any deep technological moat then you have to build brand and distribution. And this is very common. A vast majority of companies are not doing something which only they can do. Some exceptions are ASML which builds EUV machines that are then needed by TSMC to manufacture chips. ASML is a monopoly because they are the only ones who know how to build such a machine. They are not a monopoly because they are the best at branding or distribution.

Also, when you run a company which can’t enjoy a location advantage, then again you need to spend a lot of money in advertising and marketing so that you get distribution before your competitors. For example if you are a five star hotel like Taj Mansingh in the center of New Delhi. You don’t have to bother a lot about distribution. You are centrally located. No one can come and build a hotel on top of your hotel. Your moat is your location. Of course there are other moats like depreciation because your competitor would have to pay more to build a hotel now since the cost of construction has gone up a lot since the Taj was built 50 years back.

So, this brings us to VC backed companies and especially those VC backed companies that are selling a digital product. For example Paytm sells mobile recharges. Or Bookmyshow which sells movie tickets digitally. Put yourselves in the shoes of this founder. If he did not spend money in advertising and marketing, then any of his competitor would come and take away the customer. This is what Google Pay did when they launched. Do you remember getting hundreds of rupees of cashback when Google Pay came in? What can the entrepreneur do to compete with that?

One option is you just sit back and hope that the customer would stick to you for a mobile recharge even though he is going to get a cashback from Google Pay. That is never going to happen. It is irrational for the customer to behave like this. Therefore the only sensible option for any such entrepreneur would be to raise VC money and try to become the biggest. Please remember he can’t raise debt. Unlike a hotel or steel manufacturer there is no appreciating collateral to be offered to a lender here. What will you tell the bank? Please give me debt because I want to spend it on marketing and if you want collateral take my intellectual property as collateral? Would any bank give you big debt on this? A steel manufacturer can always offer his land or/and plant and machinery. This is not an option for an entrepreneur building a digital product.

Also, people like Vijay Shekhar Sharma do not come from a rich family background. They can’t raise money from their parents or uncles because there is no money in the first place for them to offer. So no money from family, no money from banks. And you are in a business which has a big target market but they dont even know about you. Think about how you did your mobile recharge in 2008. Was it efficient? Or how you paid your electricity bill? Do you remember the queues?

Or try booking tatkal on IRCTC even today. How is the experience? For a massive population like India digital businesses have so much societal value. But you need an entrepreneur who is willing to play this risky game. And he needs to convince others to fund him and share the risk with him. And those others are VCs. And what do VCs want? They want equity. Lots and lots of it. Because obviously they are putting their money at risk. Lots and lots of it. For what? For the hope that you will build something which would be useful to a huge population in the future and therefore they agree to spend a lot of money on what? Advertising and marketing.

By the time you get to the IPO the founder is drastically diluted. Vijay is unique in India. He managed to have some equity at the time of IPO. Deepinder from Zomato had 5% and Yashish from Policy Bazaar also had 5%.

This is not unique to India. All VC backed businesses leave the founder with limited equity by the time of the IPO. And even western entrepreneurs try for getting big ESOP rewards that are linked to performance post IPO. Elon Musk is the biggest example. His company was going through hell and he said I will get my ESOPs if we cross 650 billion in market cap. Reed Hastings of Netflix also got a lot of ESOPs post Netflix IPO in 2002. Multiple times of his annual salary. Vijay had also announced in 2022 that he would not get his ESOPs till the time the Paytm stock comes back to its IPO price.

In my opinion ESOPs are a much better way to reward the management as compared to big fat salaries and perks. And if the management is putting that ESOP behind a big goal then all the better. These are not founders with rich forefathers who can keep buying shares from the open market. Nor are they in a sector with a license monopoly. On the other hand they are in sectors where the regulator will actively enact regulation to avoid any kind of market concentration.

ValueV · April 22, 2025, 8:09am

++ In one of interview, VSS mentioned that he had to put 4% of personal holding in ESOP pool when paytm started in 2011 so he was getting back this exact 4%. the major mistake they have made in IPO pricing but he accepted this mistake many times in public forum. Thanks!

Deven · June 1, 2025, 12:14pm

In the last 10-15 years, the most innovative (in the finserv sector) has been Paytm", says sameer nigam, CEO, PhonePe.

Watch here: youtu.be/RcGyn1j2ZGo
Nice to know this…

Disc: Invested

James · June 12, 2025, 9:53am

Paytm Options Volume Spikes as Stock Slides on Policy Setback

Paytm’s options activity surged to its highest level since January after its shares dropped sharply. The decline followed comments from India’s finance ministry indicating there is no current plan to allow merchant fees on digital transactions—a potential revenue lever for the payments firm.

Approximately 120.4k call and 85.5k put contracts traded, driving total options volume to 6.6x the 20-day average.

June ₹900 calls were the most actively traded, followed by June ₹880 puts and ₹940 calls.
The stock fell as much as 10%, hitting a low of ₹864.20.

Vivek_Joshi · July 23, 2025, 3:26am

PayTM turns profitable!

Rs.963 cr PAT improvement YoY

Commentary is equally bullish on margins and revenue growth.

UPI MDR would be an icing on cake.

Good times ahead and a long way to go…

Disc: Invested

rpattabi · August 11, 2025, 2:48pm

Paytm sold its PayPay stake last December at the valuation of ~$3.8B. PayPay is said to be readying its IPO. Analysts / Speculation says that the valuation could be $10-12B.

It will be interesting to see how low Paytm sold PayPay stake (one fourth of the valuation?) just a few months prior. Interesting thing is that Paytm sold it to SoftBank. I’m probably paranoid / naive to think that Paytm intentionally sold it to SoftBank at low valuation to compensate for their loses in their Paytm investment. I don’t see why they would do that. Any thoughts on this are welcome.

Of course, we have to wait and see PayPay’s actual valuation at IPO.

ValueV · August 12, 2025, 7:45am

As per this article, Paytm sold paypay stake at 7.06B USD.

Though this article say Paytm Holds 7.2% as of 2021 but after that there were some fund infusion of fund which got its stake diluted to <5% so it was valued 7B USD (1.06 T Yen) as per company’s filling. Valuation most of time depends on sentiment as I recollect paytm was valued around 3B USD just a year ago.

As per filing:
These SARs, acquired by Paytm Singapore in September, 2020 will be sold to a SoftBank Vision
Fund 2 entity for net proceeds of JPY 41.9 billion. Through this deal, PayPay is valued at JPY
1.06 trillion and accordingly, PayPay SARs held by Paytm Singapore are valued at net proceeds
of JPY 41.9 billion (after netting off the exercise cost of SARs). The transaction is expected to be
closed in December 2024 subject to the satisfactory completion of all corporate approvals and
customary closing conditions.

+there would be many terms and conditions would have been attached to SAR for actual conversion.

Thanks!

rpattabi · August 12, 2025, 10:14am

@ValueV Thanks for the correction. I couldn’t find the source for ~$3.8B valuation I mentioned. Paytm’s filing, as you pointed out, clearly shows the sale happened at ~$7B valuation.

That means, my suspicion is unfounded. Paytm seemed to have sold PayPay at decent valuation. Still curious to find out PayPay’s IPO valuation.

Arun_Abraham · May 7, 2026, 11:41am

Paytm posted a good set of numbers, they showed that they are consistently profitable now and not necessarily from one time gains.

They also made it pretty clear that they are no longer aspiring for a payments bank / NBFC license but rather just focus on what they are good at, i.e., user experience, merchant acquisition, software and distribution.

Even though when I had initially invested, I had envisioned that they would be similar to Ali Pay for India, but now I think this makes sense for Paytm and it’s not bad after all. No risk of regulatory uncertainty !!

When it comes to AI, they have made it clear that any new investments that they would be doing would be only in AI.

Personally, I think Paytm have a strong moat and that is the massive payments data, merchant network and consumer behaviour signals. This could help them build a strong intelligence layer.