Paytm shares fell after the Indian fintech announced a buyback of as much as 8.5 billion rupees ($103 million), offering little respite to a stock down 75% since listing on bourses last year.
(Bloomberg) — Paytm shares fell after the Indian fintech announced a buyback of as much as 8.5 billion rupees ($103 million), offering little respite to a stock down 75% since listing on bourses last year.
The company, whose official name is One 97 Communications Ltd., on Tuesday approved a plan to repurchase as many as 10.5 million shares at a price not exceeding 810 rupees apiece on the open market. That upper limit is a 59% premium to Thursday’s closing price, before the company said it was considering a buyback.
Shares of Paytm fell as much as 2.7%, erasing its earlier gains on Wednesday. The broader Mumbai market was flat.
While a buyback may help bolster the stock, which floated at 2,150 rupees at the initial public offering, some investors worry about management using cash to prop up the share price rather than to turn around loss-making operations. The buyback could be seen as Paytm giving an exit to investors who bought shares before the IPO, said Deven Choksey, managing director at KRChoksey Holdings.
“The company is supposed to arrest the losses before returning the capital to shareholders,” he said.
Paytm said in a filing that its board determined that there was “surplus liquidity that can be productively applied” for a buyback. Backed by China’s Ant Group Co. and Japan’s SoftBank Group Corp., Paytm had a cash balance of 91.8 billion rupees at the end of September, according to its earnings statement last month.
The company is estimated to burn $33 million over the next three quarters, and would likely break even in the second quarter 2024 on an adjusted earnings before interest, taxes and depreciation basis, JPMorgan analysts said in a note to investors. The brokerage kept its overweight rating, saying the repurchases would support the shares in the near term.
“Paytm board believes that this buyback is a sign of confidence that the company is on a clear path to deliver cash flow profitability, and this buyback will not have any impact on its growth plans in the near future or on its profitability plans,” Paytm said in its filing.
Once India’s most valuable startup, the company said it is ahead of its plans to achieve an operating profit before employee stock option costs by the end of September 2023.
Headquartered on the outskirts of New Delhi, the company posted a wider second-quarter loss last month. It competes with Walmart Inc.’s PhonePe and Alphabet Inc.’s GPay in the crowded Indian fintech market.
–With assistance from Jennifer Ryan and Ashutosh Joshi.
(Updates with comment from analyst in fifth paragraph)
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