Paytm board okays share buyback worth Rs 850 crore at Rs 810 per share

The board of One97 Communications, the parent company of Paytm, on Tuesday, allowed buyback of shares worth Rs 850 crore.  The company would undertake the buyback exercise at a maximum price of Rs 810 per share, nearly a 50 per cent premium to Tuesday’s closing price. 

Assuming a full buyback of Rs 850 crore and applicable buyback taxes, the total outlay would be in excess of approximately Rs 1,048 crore. 

The company in a statement said that until the completion of the buyback period, the company’s directors and key management personnel -- Vijay Shekhar Sharma (founder & CEO) and Madhur Deora (executive director, president & group CFO) -- would not be participating in any sale of shares.

Vijay Shekhar Sharma, founder & CEO - Paytm said, “I believe that a buyback at this stage will be immensely beneficial for our stakeholders and will drive long-term shareholder value.”

He further said in his statement in the regulatory filings that over the last year, there is clear business momentum, “and we are ahead of our plans. Looking at the monetisation opportunities in our core payment and credit business, we feel confident to generate healthy revenues and cash flows to invest in sales, marketing and technology.”

The company in the filings said that 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.

Based on the minimum buyback size and maximum buyback price, the company would purchase a minimum of 5,246,913 equity shares, the company said in a release.

The company in a regulatory filing on December 8 announced its intention of a buyback of its equity. The decision for a buyback had been initiated as the company’s stock has seen the worst fall since its IPO. Recently, one of its long-term shareholder Softbank too trimmed its holding in the company.

The announcement of a buyback did help the company’s stock price, which was up 3.2 per cent during intraday trading as the stock touched a high at Rs 545 per share. The company stock was up 2.16 per cent at close at Rs 539.5 per share at the close of the day.

According to a report by Stakeholders Empowerment Services (SMS) before the company came out with the details of the buyback, “If buyback price is at premium to market price, IPO investors can mitigate their pain by participating in buyback. Since buyback will be open to all shareholders, as it has no promoter, it will give an opportunity for all shareholders to make a quick buck, especially to those who were pre-IPO investors and were issued shares at deep discount. For example: The average cost of shares acquisition by the founder shareholder was Rs 0.5 per share whereas the IPO price stood at Rs  2,150 per share. The company is currently trading at a price of Rs 545 per share.”

Many investors and market analysts were questioning the timing of the buyback and wondered if this signals that the company does not see growth in its business.

“At the time of its IPO, the company had announced its plans to undertake new initiatives. It is only once these initiatives are rolled out that the board can satisfy itself that the war chest is sufficient. Therefore, the board must articulate how it has determined that the post-buyback liquidity will be sufficient to meet the unexpected investments in these new initiatives,” questioned a report by Institutional Investors Advisory Services.