Paytm shares rally ahead of buyback proposal. What to expect?

On both BSE and NSE, Paytm stock has climbed by nearly 3% each.

The stock traded at ₹539.45 apiece up by 2.15% on BSE currently. It was near the day’s high of ₹542.65 apiece. The company’s market cap is over ₹35,030 crore as of now.

On the previous day, Paytm stock closed at ₹528.10 apiece on BSE. Since its listing in November last year, Paytm stock has witnessed more bears than bulls and the stock is currently trading at nearly 75% discount compared to its IPO issue price of ₹2,150 apiece.

On BSE, the stock has a 52-week high and low of ₹1,584 apiece and ₹439.60 apiece respectively. In a year, the stock has corrected by at least 66%. Year-to-date, till December 12th, the stock has dipped by over 60.5%.

However, the current month has been fruitful so far. Paytm stock has gained by nearly 13% so far in December.

As per the regulatory filing, last week, Paytm said, “the Board of Directors of the Company is scheduled to be held on Tuesday, December 13, 2022, to consider a proposal for buyback of the fully paid-up equity shares of the Company.”

It also revealed that the management believes that given the company’s prevailing liquidity/financial position, a buyback may be beneficial for its shareholders.

Brokerages are optimistic about Paytm’s buyback. According to Dolat Capital, Paytm buyback will be a clear cloud on looming concern. It added that Paytm’s buyback at the current valuation makes lots of sense given the declining need for organic capital allocation and very compelling valuation for the Paytm business.

In its note, Dolat Capital stated that they believe the Buyback announcement would take away multiple investor concerns around profitability and cash generation roadmap of the business, any further pressure from potential supply from large investors in near future, and would boost confidence on Management’s optimal capital allocation practice and potential for further earnings accretion in future through Buyback route.

On the other hand, on Monday, Paytm reported its operational performance for the first two months of Q3FY23.

During the first two months of Q3 which ended on November 2022, the company’s value of loans disbursed jumped by 374% y-o-y to ₹6,292 crore, while the number of loans disbursed grew 150% y-o-y to 6.8 million cumulative loans. Also, the company continued to strengthen its leadership in offline payments, with more than 5.5 million merchants now paying a subscription for payment devices.

Meanwhile, the company’s total merchant GMV processed through its platform aggregated to ₹2.28 lakh crore. The company’s Super App continues to see growing consumer engagement with an average MTU of 84 million in the two months of Q3FY23 that ended November 2022.

In its report, Morgan Stanley mentioned that Paytm’s total number of loans disbursed in Nov-22 was 3.4 million (+139% YoY), broadly steady versus Oct-22 (+161% YoY) and was 3.2 million in Sep-22. For QE Sep-22, the number was 9.2 million (+224% YoY) versus 8.5 million (+492% YoY) last quarter. For FY22, the number of loans disbursed was 15.2 million (+478% YoY) versus 2.6 million in FY21. Total devices deployed rose to 5.5 million versus 5.1 million last month. On a trailing 12-month basis, Paytm added 3.9 million devices, implying growth of 2.4X against a year ago. During QE Sep-22, Paytm added 1 million devices versus 0.9 million devices in QE Jun-22.

Thereby, Morgan Stanley gives Paytm ‘Equal-weight’ rating on strong Nov 2022 numbers, and has set a price target of ₹695 on Paytm.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.