scorecardresearchPaytm falls nearly 2% as buyback price fails to enthuse investors

Paytm falls nearly 2% as buyback price fails to enthuse investors

Updated: 14 Dec 2022, 10:20 AM IST

  • On Tuesday, Paytm's board announced a buyback of its shares from the open market, which will be completed in a maximum period of six months.

Paytm announces buyback plans of 850 crore rupees, at a price not exceeding 810 rupees

Paytm announces buyback plans of 850 crore rupees, at a price not exceeding 810 rupees

Shares of One 97 Communications Ltd, parent organisation of Paytm, were down nearly 2% during early trade on Wednesday's. Late Tuesday, the company announced that its board has approved a share buyback plan at 810 per share

The share buyback plans of 850 crore failed to enthuse investors leading to the stock's fall on Wednesday morning. 

Paytm listed at a share price of 2150 per share in July 2021. 

Paytm said, the number of shares bought back will be 10.5 million at the maximum buyback price of 810.

The company in an exchange filing said that the directors and other senior management members will not sell any shares during the buyback period.

Further, the board emphasised that the buyback is an indication that the firm is confident that it is on a clear path to achieving cash flow profitability, and that the buyback would not have any bearing on its near-term growth plans or its profitability plans.

"Witnessing Paytm’s momentum of financial performance, clear path to cash flow generation and excess cash as a result, the board has determined that a buyback of the company's shares would be accretive for its shareholders." said the company in an exchange filing on Tuesday.

Brokerage JP Morgan in its report said that the company has $1.1 billion in cash as of September-22, and $127 million outlay of cash for buyback in the brokerage's view is not a significant amount.

Share price chart of Paytm

"We expect it to burn $33 million over the next three quarters before turning Adjusted Ebitda breakeven in 2QFY24E. Also, we expect the buyback announcement at a 50% premium to provide support to the stock price in the near term," said the brokerage in its report.

According to Avinash Gorakshakar, head research of Profitmart Securities, one should not expect any big fireworks here, as market eventually will be disappointed.

The buyback price will serve as a short-term cushion against any future price fluctuations, but the markets will prefer a swift return to operating profitability.

"With already operating losses this buyback will not improve ROE EPS, and is like a consolation offer to public shareholders money, which is being partly given back in the form of this buyback offer," added Gorakshakar.

The stock has fallen 65.69% from 52-week high of 1,555.0 level, and the weekly average delivery volume is 26.62%.

At 10:09 IST , shares of the company were trading over 2% lower at 529.20 rupees per share.

According to Mintgenie poll, 11 analysts recommend ‘buy’ rating for the stock.

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First Published: 14 Dec 2022, 10:20 AM IST