The board of Digital financial services firm One97 Communications (OCL), which owns the Paytm brand, on Tuesday, announced a ₹850 crore share buyback scheme through the open market route to shore up its collapsing stock price. Paytm shares ended at ₹538.40 on BSE on Tuesday.
Paytm announces ₹850 crore share buyback: The maximum size of the buyback of equity shares from the open market route through the Indian stock exchanges is ₹850 crores, excluding buyback tax, at a price not exceeding ₹810 per share.
Paytm said the maximum buyback size is less than 10% of the aggregate of the total paid-up share capital and free reserves of the company as on 31 March 2022.
The indicative maximum number of shares that will be bought back is 1,04,93,827 shares, representing about 1.62% of the paid-up share capital of the company, it said in a release. Based on the minimum buyback size and maximum buyback price, the company would purchase a minimum of 5,246,913 equity shares.
The share buyback comes less than 13 months after the loss-making digital payments major’s disastrous listing, which saw its shares tank 75% of its IPO price. Through the IPO — the country’s largest back in November 2021 — Paytm had raised ₹18,300 crore by issuing fresh shares at ₹2,150 apiece.
‘Stock buyback a strategy play for Paytm’
Karthick Jonagadla, the founder of Mumbai-based Quantace Research, said, “Stock buyback is a strategy play for Paytm because the share price has seen sharp erosion.”
“For the buyback to work, the company may need to pay a 30%-40% premium over the current price. Otherwise, it may not serve the purpose,” Jonagadla said.
Paytm has a liquidity of ₹9,182 crores, according to its last earnings report. The regulatory filing stated that all directors present voted unanimously in favour of the proposal, including all independent directors. The company’s directors and key management personnel will not sell any shares during the buyback period.
“Paytm board believes that this buyback is a sign of confidence that the company is on a clear path to deliver cash flow profitability, and this buyback will not have any impact on its growth plans in the near future or on its profitability plans,” the company said.
Paytm’s stock
Sell-side analysts have turned more positive on Paytm’s stock in recent weeks. According to Bloomberg, as many as eight of the 12 analysts tracking the stock recommend a buy or equivalent rating — the highest number since its trading debut.
Under a share buyback or repurchase, a company buys back its shares from investors or shareholders. Buyback is usually seen as an alternative, tax-efficient way to return money to shareholders.
The buyback reduces the number of shares in the market, increasing their value. The maximum limit for any buyback here in India is 25% of the aggregate paid-up capital and free reserves.
The share price of One97 (Paytm) has fallen 75% from its IPO price. Shares of Paytm were trading 1.83% higher to settle at ₹538.40 apiece in late afternoon deals on BSE today.
