The board of One 97 Communications Ltd., the listed-entity that runs Paytm, will make a decision at the buyback on Tuesday. The transfer comes because the inventory has plunged about 75% since its list ultimate November to emerge as the arena’s worst-performing huge preliminary public providing in a decade. The droop additionally brought on a unit of Japan’s SoftBank Group Corp. — a key backer — to trim its retaining.
While a buyback may assist stem the rout in Paytm stocks At least briefly, some traders are wondering the try to arrange the inventory worth quite than placing the money to make use of for trade. The corporate, India’s main virtual bills emblem, ultimate month posted a much wider second-quarter loss.
“Stock buyback is a strategy play for Paytm because the share price has seen sharp erosion,” stated Karthick Jonagadla, the founding father of Mumbai-based Quantace Research. “For the buyback to work, the company may need to pay 30%-40% premium over current price. Otherwise, it may not serve the purpose.
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“While tabling a proposal for a buyback, the company has ensured that there is surplus liquidity, which means that all cash requirements are adequately budgeted,” Paytm said in an emailed statement on Tuesday. “The management is confident of strong operational performance and remains focused on building long-term value for its shareholders.”
Buyback size
Indian firms cannot use money raised from an IPO to fund a share buyback, the company had said earlier. Any buyback, if approved by the board, will be done using cash on the company’s books, it said.
Rahul Jain, an analyst at Dolat Capital Market Ltd. in Mumbai, estimates the appropriate size of a buyback at about $97 million to $99 million. Paytm would likely buy the shares on the open market, he wrote in a note earlier.
To be sure, sell-side analysts have turned more positive on Paytm’s stock in recent weeks. As many as eight of the 12 analysts tracking the stock recommend a buy or equivalent rating — the highest number since its trading debut, according to data compiled by Bloomberg.
Paytm wants to tell investors that the current stock price is not reflecting its value and even a small-sized buyback can help the company send them the signal, according to Vikas Gupta, a strategist at OmniScience Capital. “The company’s focus is clear, it now wants to attain profitability at a certain point of time and remains confident of it.”
Big IPO
Touted as India’s largest-ever IPO on the time of its list, Paytm’s providing attracted conventional international inventory pickers equivalent to BlackRock Inc. and the Canada Pension Plan Investment Board. Shares had been offered on the most sensible of a advertised vary because the deal attracted robust call for from people and budget, despite the fact that they by no means traded above the list worth.
Helped via a gush of worldwide liquidity, India’s then booming IPO marketplace noticed robust investor urge for food for different shopper generation corporations as neatly — together with on-line meals supply company Zomato Ltd. and attractiveness merchandise store Nykaa — in spite of questions on their profitability and valuations.
With stocks of those corporations coming underneath force following the worldwide meltdown within the generation sector, quite a few their early backers have exited or trimmed stakes.
“There is little merit in bucketing cash this way,” Institutional Investor Advisory Services India Ltd., a proxy advisory company, wrote in a be aware on Monday. Unless the stocks are repurchased at greater than Rs 2,150 a work — the associated fee at which they had been offered within the IPO — the buyback will desire most effective Paytm’s pre-IPO shareholders and staff, it wrote.
“It is unclear if the size of the buyback will be sufficiently meaningful to move the needle” for Paytm, IIAS wrote.