It has been a humbling year for a new generation of Indian tech companies and for Vijay Shekhar Sharma, the billionaire founder of iconic fintech group Paytm, in particular.
payment it has become a focal point for much of investor frustration with the cohort of companies that have joined the stock market in the last 18 months.
Their The long-awaited listing in November was a debacle with shares plummeting after debut, sending its market value of $20bn at IPO price down to current levels of around $6bn. The company has continued to bleed financially with losses nearly doubling to 6.4 billion rupees ($81 million) in the quarter ending June from a year earlier. and has faced scrutiny from regulators, while law enforcement officials this month searched Paytm’s offices in an investigation of illicit Chinese loan providers. (Payment denies no irregularity, saying that the searches were related to independent parties not belonging to the group).
Investor discontent with the company led proxy advisers last month to recommend that shareholders vote against reappointing Sharma as CEO and against his salary package, arguing that he has consistently reneged on promises to become profitable.
One of the proxy advisers, Institutional Investor Advisory Services (IIAS), noted that Sharma’s annual remuneration of Rs 8 billion ($101 million) was higher than that of all CEOs of companies in the Sensex index of the Bombay Stock Exchange and that the lack of disclosure on the granting of stock options shows “lack of alignment with the interests of shareholders”.
Sharma survived the votes, thanks in part to the help of veteran investors such as SoftBank and Alibaba, which together with the founder own the majority of the capital. But as a sign of the magnitude of the concerns of other shareholders, the majority of public institutions voted against his salary.
Sharma defended his company, reiterating that Paytm was building world-class technology. But the experience should be a wake-up call for publicly traded tech companies in India. Ever since Paytm went public with great fanfare last year, investors are getting tired of inconsistent messaging and struggling to make a profit.
Last year’s new-age IPOs marked a Historic moment for Indian technology. The start-up sector boomed, with billions of dollars coming from foreign venture capitalists attracted by India’s tech talent and large upwardly mobile population.
The first opportunity for the general public to participate in that growth was the July 2021 listing of Zomato, a food delivery group, and a household name. Its shares doubled from their issue price in the months since, with co-founder Deepinder Goyal tell investors that he hoped the IPO would “inspire millions of Indians to dream big”. Beauty e-commerce group Nykaa and SoftBank-backed insurance aggregator Policybazaar followed with well-received listings.
But Paytm’s initial public offering helped spark a big change. Investors balked at its high valuation, questioning whether the company had a significant advantage over its many digital payments competitors. The global environment also changed soon and Indian tech stocks are now trading at deep discounts, with Zomato down 60 percent from its November high. While stocks are, of course, partly victims of the global technology paththe liquidation has exacerbated concerns about the companies’ business models and management styles.
Zomato, for example, has struggled with challenging unit economics and slowing user growth. The focus of the group, which plans to restructure and rename its parent company “Eterna,” to transparency also unsettled analysts, with management initially refusing to make quarterly earnings calls before reversing course after a violent reaction.
But there have been some improvements in the sector, with Zomato reporting higher revenue and smaller losses in its June quarter profit. But Amit Tandon, co-founder of IIAS, points to a troubling divide between the founders and their private equity backers on one side and public investors on the other. “The governance standards for many of these public market investors are higher than what we see in the private equity space,” he says. Even as newcomers vote for the change, private equity firms seem “happy to keep the founder who helped them make so much money happy.”
Despite surviving the votes, Sharma can’t get too comfortable. She now says Paytm will become “operationally” profitable by September 2023. While he and his allies remain in control, the end of a shareholder lock-in period in November could bring in more outside investors. he fails to hit the target again.