One97 Communications, the parent company of payments solutions firm Paytm, on December 12 approved a share buyback plan of ₹ 850 crores, priced at ₹ 810 per share. Its shares were trading at ₹ 530 levels on Wednesday.
“The approval of the Board be and is hereby granted for the buy-back by the Company of its fully paid-up equity shares having a face value of ₹ 1 (Rupee One only) each (the “Equity Shares”) from the existing shareholders of the Company, pursuant to the open market route through the stock exchange mechanism (i.e., through the Stock Exchanges), at a price not exceeding ₹ 810/- (Rupees Eight Hundred and Ten only) per Equity Share (the “Maximum Buyback Price”) payable in cash, for an aggregate amount up to ₹ 850 crores (Rupees Eight Hundred and Fifty crores only) (the “Maximum Buy-back Size”)”, the company informed the bourses.
Paytm’s shares gained 5.74% in December, so far. It reported an improvement in its monthly operating metrics in terms of its lending business and merchant subscriptions.
Analysts at JP Morgan said that the buyback could support the Paytm stock in the near-term.They expect Paytm to burn $33 million in cash over the next three quarters, but reach adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) breakeven in Q2 FY24.
“Generally, buybacks are conducted when corporates feel that their stock is undervalued. Apart from that, it is a tax-efficient way of returning money to shareholders. If a newly-listed platform company is considering buybacks even as they work towards profitability, it’s a function of its confidence in its business prospects. It’s also a question of whether they may not need to burn further cash and they believe that buying back shares at the current valuation could be more attractive.” MD Krishna Kumar Karwa from Emkay Global Financial Services.
However, other analysts say that Paytm’s buyback is hardly a solace, especially for those investors who bought its shares during the IPO at ₹ 2150 apiece. While the market did not expect the buyback price to be anywhere near the IPO price, it expected a better premium.
Paytm will be buying back its shares at a price not exceeding ₹ 810 and for an aggregate amount of up to ₹ 850 crores. This means that it is free to buy at a lower price than this and buy any quantity of shares within the approved number.
It informed the exchanges that the minimum buyback size is ₹ 425 crores and it will purchase a minimum of 52,46,913 equity shares. Therefore, analysts say that there’s nothing much for IPO investors who bought the shares at ₹ 2150 and ~75% of their capital has eroded.
Written by Simran Bafna
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