Paytm stock price fell more than 2% in early trading hours to hit an intraday low of Rs 525.05 on Wednesday, a day after its parent, One97 Communications Ltd, approved a first buyback plan for up to Rs 850 crore worth of shares. Paytm board had approved the buyback at a 50% premium to Tuesday's closing price.
The stock opened at Rs 544, but dropped more than 3% by around 10.15 AM on Wednesday, weighing down on the hopes of shareholders and market participants who were expecting a rally in the company’s stock price after the buyback announcement.
The buyback will be conducted at a maximum price of Rs 810 per share, Paytm said in a statement to stock exchanges, adding that the buying back of shares will take place through the open market route.
Paytm expects to spend Rs 1,048 crore on the buyback plan, with up to Rs 850 crore being spent on buying shares and the rest on accounting for applicable buyback taxes.
The company had a cash reserve of Rs 9,182 crore at the end of the September quarter, which includes unused proceeds from its IPO. The company, however, cannot use IPO proceeds for buyback as per regulations.
The buyback is to be completed in six months.
The buyback could help the fintech company give a push to its stock, which has fallen more than 75% from its IPO (initial public offering) allotment price of Rs 2,150.
Paytm said that the vote was unanimous in favour of the buyback plan, “including all independent directors”, and added that the decision has been taken after “a detailed review of projected investment requirements to drive long-term value creation”.
“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.
However, proxy advisory firm Institutional Investor Advisory Services (IiAS), on Monday raised questions on the timing of Paytm buyback as the company is not yet cash flow positive. It also pointed out concerns related to its future growth strategy and liquidity status.