Shares of One 97 communications, Paytm's parent company, rose more than 7% to ₹544 apiece during Friday's intraday trade after the company said it was considering buying back of its shares.
On Thursday 08, the company said that its board of directors will meet on December 13 to consider a proposal for a buyback of its shares without specifying details, Reuters reported.
"The management believes that given the company’s prevailing liquidity and financial position, a buyback may be beneficial for our shareholders," the company said.
Retail investors would benefit if Paytm decided to conduct a buyback because they would get a chance to sell their shares at a premium over the market price. In addition, a buyback usually results in an increase in share price due to demand and supply mismatches that emerge when there are fewer shares available in the market for trade.
Investors are already sitting on a 75% loss in the Paytm stock since its listing. Almost every investor who was anticipating huge gains from Paytm has incurred heavy losses from the very first day of Paytm's listing on the stock market.
Paytm made an initial public offering (IPO) of ₹18,300 crore in November 2021. It got listed on the exchanges at a 9 percent discount to its offer price of ₹2,150, and the stock touched the lower circuit on its market debut day.
Since its listing, the stock has been falling, and it has never traded above its IPO price to date. Taking the previous closing price of ₹508.20 into consideration, the stock is available at a discount of 76.32% from its issue price, bringing the Vijay Shekhar Sharma-led company's market capitalization below ₹35,000 crore.
On November 17, Paytm's stock plunged 10.25% after SVF India Holdings (Cayman), an Indian subsidiary of Japan's investment fund SoftBank, sold a 4.5 per cent stake in the company through block deals for ₹1,631 crore.
SoftBank is the second-largest shareholder with a 17.45 per cent stake in the company. Post the latest transaction, SoftBank's shareholding has declined to 12.95 per cent, PTI reported, quoting exchange data.
According to a recent Bloomberg report, Paytm has capped the worst first-year share plunge among large IPOs over the past decade. The stock has lost 75% of its market value in just one year. The dive is the steepest first-year slide globally among IPOs that raised at least the same amount since Spain’s Bankia SA’s 82% drop in 2012, data compiled by Bloomberg show.
However, analysts are bullish on the stock. Global brokerage house CLSA has upgraded its rating from "sell" to "buy" on the stock, with a target price of ₹650 apiece.
According to the brokerage, the price correction improves the risk-reward ratio, and the company has more than $1 billion in cash on the balance sheet, with cash burn expected to end in the next 4-6 quarters.
Paytm's net take-rate increased from zero to 13 bps over the previous two years as a result of lower processing expenses and a bigger percentage of revenue from its Soundbox. The brokerage projects that Soundbox will provide 14 percent of total payment income.
On the lending front, CLSA believes that the revenue potential in five years could be over ₹30 billion, provided that there are no asset-quality hiccups.
Similarly, domestic brokerage firm ICICI Securities has a "buy" call on the stock with a target price of ₹1,285 per share. The brokerage stated that the company's management is confident about becoming an FCF-generating company (net of capex) in the next 12–18 months, driven collectively by improved profitability across payment and financial services distribution, cloud, etc.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
