Paytm’s parent, One97 Communications Ltd, said its board has approved a plan to buy back up to ₹850 crore worth of shares at a 50% premium to the last trading price in a move intended to support the company’s stock, which has plunged 75% since its initial share sale last year.
The buyback will be conducted at a maximum price of ₹810 per share, the company said in a statement to stock exchanges. The buyback will be implemented through the open market route and is to be completed in six months, the filing said. The buyback price is still a discount to Paytm’s IPO price of ₹2,150 per share but a premium to Tuesday’s closing price of ₹538.40.
The company stated that assuming shareholders tender shares worth ₹850 crore and accounting for applicable buyback taxes, the total outlay for the transaction will be more than ₹1,048 crore.
Paytm had a cash reserve of ₹9,182 crore at the end of 30 September. This includes the unused proceeds from its November 2021 IPO, which it cannot use as per regulations.
The board’s vote was unanimous in favour of the buyback plan, “including all independent directors”, the firm said.
“Looking at the monetization opportunities in our core payment and credit business, we feel confident of generating healthy revenues and cash flows to invest in sales, marketing and technology,” managing director and chief executive officer Vijay Shekhar Sharma said.
Paytm added that the board decision has been taken after “a detailed review of projected investment requirements to drive long-term value creation”.
The company had argued that it improved its earnings before interest tax and amortization (before Esop) cost margin from -51% in the quarter ended March 2021 to -9% in the September quarter. Paytm said that it is on track to become adjusted Ebitda profitable by September next year. It said its annualized run rate for the loan distribution business is now ₹39,000 crore.
The board’s decision to approve the buyback comes following concerns from proxy advisory firms about whether it is the most effective use of Paytm’s reserve cash.
“Did the company declare in its prospectus that its existing liquidity pre-IPO will not be used for its business? Obviously not. Had the company overestimated its funds’ requirement? Did it raise more money than required? Has it raised all proceeds of the IPO for its objects? Are the funds not fungible in this case?” a note issued by proxy advisory firm Stakeholders Empowerment Services on Tuesday said.
On Monday, another proxy advisory firm Institutional Investor Advisory Services (IiAS), also raised questions on the timing of the buyback as Paytm is not yet cash flow positive.