Paytm Grants Equity Shares Worth Rs.5.8 Crore Under ESOP Scheme

The board of One97 Communications, the parent company of Paytm, has approved the allotment of 84,793 equity shares under its employee stock option plans.

Employee Stock Ownership Plan (ESOP) is a benefit program that allows employees to buy shares in the company at a lower price than the market rate. In simple terms, it gives employees a chance to become part-owners of the company by purchasing its shares at a discounted price. This plan helps employees feel more connected to the company’s success while also providing them with a financial benefit.

One thing we should keep in mind that it is an option, and it is not an obligation. If employee is willing to take such an option, he/she may take it and vice versa.

Such plans are given to existing employees as a reward for their hard work or long service in the company. The main goal of ESOPs is to keep employees loyal and motivated by making them part-owners of the company. This way, employees stay with the company for a longer time and feel more responsible for its success.

ESOPs can be offered only to permanent employees of the company, its subsidiary, holding, or associate company, including directors (excluding independent directors). However, they cannot be granted to promoters or directors holding more than 10% of the company’s equity shares, unless the company is a startup (as recognized by the government).

In a regulatory filing on March 9, Paytm stated that the board sanctioned the issuance of these shares at a face value of INR 1 each. The allotment was made to eligible employees upon exercising their vested options under the Employee Stock Option Scheme 2019 and the Employee Stock Option Scheme 2008.

Of the total, 84,377 shares were allotted under ESOP 2019, while 416 shares were distributed under ESOP 2008. The exercise price for these shares was set at INR 9 per share.

ESOP-Related Announcements by Paytm

In addition to the recent allotment of 84,793 equity shares under its employee stock option schemes, Paytm has been actively expanding its Employee Stock Option Plan (ESOP) in recent months:

1. February 2025: The company granted Rs.1.36 lakh equity shares under ESOP 2019, increasing its total paid-up capital to INR 63.76 crore. 

2. January 2025: Paytm expanded its ESOP pool by granting Rs.2.03 lakh stock options, each with a face value of INR 1 and an exercise price of INR 9 per option. 

3. December 2024: The company allotted Rs.2.44 lakh equity shares under its ESOP schemes, with 2,42,795 shares issued under ESOP 2019 and 2,006 shares under ESOP 2008.

Financially, Paytm reported a 6% reduction in its consolidated net loss, which stood at INR 208.5 Cr for Q3 FY25, compared to INR 221.7 Cr in the same quarter the previous year. The reduction in net loss was primarily driven by cost-cutting measures and operational efficiencies. 

However, despite the improvement in net loss, the company's revenue from operations witnessed a sharp decline of 36%, falling to INR 1,827.8 Cr from INR 2,850.5 Cr in FY24. The drop in revenue was largely attributed to regulatory challenges, declining payment business volumes, and an overall slowdown in transaction-based revenue streams. Additionally, increased competition in the fintech space and shifting market dynamics contributed to the downturn in operational earnings. 

In addition to financial concerns, On the regulatory front, Paytm's parent company, One97 Communications, received a show-cause notice from the Enforcement Directorate (ED) for alleged violations of the Foreign Exchange Management Act (FEMA). The notice pertains to transactions involving its subsidiaries, Little Internet Private Limited and Nearby India Private Limited, during the period from 2015 to 2019, before they became part of Paytm. 

The alleged violations include failure to report foreign investments to the Reserve Bank of India (RBI) and non-compliance with RBI's pricing guidelines. Paytm has stated that it is working to resolve the matter in accordance with applicable laws and regulatory processes. 

On March 10, Paytm’s stock closed at INR 665.51 per share on the BSE, marking a 2.8% decline in its trading value.

How ESOPs can be beneficial for Paytm?

1. Employee Retention & Motivation: By offering stock options, Paytm can incentivize employees to stay with the company longer and align their interests with the company’s success.

2. Attracting Talent: ESOPs make the company more attractive to potential hires, especially in a competitive job market where equity compensation is highly valued.

3. Cash Flow Efficiency: Instead of offering high salaries, Paytm can provide stock options as part of compensation, helping manage cash flow while still rewarding employees.

4. Performance Enhancement: Employees with stock options are more likely to work towards improving the company’s performance, as their financial benefits are tied to stock price growth.

5. Shareholder Value Creation: By granting stock options, Paytm fosters a sense of ownership among employees, potentially driving innovation, productivity, and ultimately increasing shareholder value.