Paytm Share Buyback: Shares of digital financial services firm One97 Communications, which operates Paytm, quickly gave up their opening gains on December 14 and traded lower despite the company’s board approving a Rs 850 crore share buyback plan on December 13. The company said that it will buy back up to 10.5 million shares of the company at a price of up to Rs 810 per share, which was much higher than the Rs 650 per share expected by the market.
“The company will undertake a buyback of up to Rs 850 crores (excluding buyback taxes and other transaction costs) at a maximum price of Rs 810 per share and has opted for the open market route through stock exchanges method, which is to be completed within a maximum period of six months,” Paytm said in the filing.
However, market participants expressed disappointment over the route through which the company will buyback shares. Paytm said that it will buy back its shares through the open market method instead of the much preferred tender route.
What is a Buyback Plan?
Under the open market method, a company buys back shares through the market and therefore, shares can be purchased at any price up to the cap provided by the company. This is different from the tender route, wherein shareholders can tender their shares for buyback at the fixed price set by the company.
Further, under the tender route 15 per cent of the buyback of shares is reserved for retail investors whereas, no such exemption exists under the open market route. Several market participants chided the open market method chosen by Paytm will make the share buyback plan a “non-event”.
Paytm has opted for the open market route through the stock exchange method for the buyback programme and expects the process to be completed within a maximum period of six months.
The stock traded lower in early morning deals, falling more than 3 per cent to Rs 525.05 on NSE. At 10 AM, the counter quoted Rs 533.25, down 1.14 per cent.
YTD, Paytm share price has tanked 60 per cent. At the current level, the company has a market cap of Rs 34.69 thousand crore, according to NSE website.
Paytm made a tepid stock market debut on November 18, 2021. The Rs 18,300 crore-IPO (initial Public Offer) was launched in November with a price band of Rs 2,080-2,150 apiece. The stock got listed at Rs 1,950 apiece levels on the exchanges – 9 per cent lower than the issue price.
What Do Analysts Say?
Girish Sodani, Head of Equity Market at Swastika Investmart Ltd., said: “Shareholders who do not wish to remain invested in the company may surrender their shares and exit, with the company offering a 50 per cent premium over the market price of Rs 530 per share. However, even at the Rs 810 buyback price, investors who purchased shares in the IPO for Rs 2,150 each and remained invested are still in the red by 62.32 per cent. As many broking house include JP Morgan also has given an overweight rating with a target of Rs 1,100. Expects PAYTM to see strong revenue growth across all its business segments.”
Morgan Stanley, which has an equal-weight rating on the counter, said that at the current price level, Paytm could potentially buyback up to 16 million shares.
The company’s buyback plan has left the market divided on the objective it will achieve. While some suspected the management of trying to manage stock price by effectively creating a floor on the share price, other questioned the wisdom of a loss-making company utilizing its cash to repurchase shares.
“We expect the buyback announcement at a 50 per cent premium to provide support to the stock price in the near term,” brokerage firm JP Morgan India said in a note.
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