Paytm board to weigh buyback tomorrow after historic slump

Paytm directors are expected to take a call on the number of shares the fintech company will potentially repurchase and at what price.

Rahul Jain, an analyst at Dolat Capital Market Ltd, said, “Buyback at current valuation makes a lot of sense given declining need for organic capital allocation and very compelling valuation.”

Jain estimated the appropriate size of a buyback at about ₹800 crore to ₹1,000 crore and said Paytm is set to buy the shares on the open market.

Jain is among other analysts who recommend buying the Paytm stock. However, few analysts have warned that the share buyback would not bring long-term relief to investors as concerns around the company’s slow path to profitability remained.

“This company is yet to make profits but its in a hurry to announce a buyback,” said Chokkalingam G, Founder, Equinomics Research & Advisory Pvt Ltd.

Three say hold and Macquarie analysts led by Suresh Ganapathy, taking an opposite view, last month flagged rising competition from billionaire Mukesh Ambani’s Jio Financial Services.

Aditya Kondawar, a partner at wealth management firm Complete Circle Capital, questioned the value of a potential buyback. Newer companies should invest their cash in their businesses rather than attempt to manage their share prices, he said.

“They need to use it in the right manner that delivers them profits and free cash flow,” Kondawar said. “If capital allocation is not done judiciously, the cash is going to exhaust, leaving them with a limited runway.”

Paytm shares

Shares of Paytm, once the country’s most valuable startup, dipped 75% for the worst first-year share plunge among large IPOs over the past decade. The stock jumped 7.2% last Friday after announcing the buyback proposal, as investors assessed a repurchase program’s potential impact and the unprofitable company’s prospects.

Paytm had in November 2021 raised ₹18,300 crore through the IPO.

In an emailed statement, Paytm said that Indian firms cannot use money raised from an IPO to fund a share buyback. Any buyback, if approved by the board, will be done using cash on the company’s books, the company said.

Paytm has a liquidity of ₹9,182 crore, according to its earnings report last month. Liquidity of a firm is measured by its ability to covert assets into cash.

Last week, Paytm said it will consider a buyback of shares on 13 December, saying it thinks the move will be beneficial for its shareholders “given the company’s prevailing liquidity and financial position.”

In November, Paytm said it would become free cash flow positive in the next 12-18 months.

On Monday, shares of Paytm was down 2.70% to ₹529.90 apiece on NSE in late afternoon deals.