Rs 850-crore buyback at premium to support Paytm stk in near-term: JPMorgan
Paytm’s Rs 850-crore share buyback programme could support the stock’s price in the near-term, analysts at JPMorgan said. This, the brokerage said, was due to the 50 per cent premium at which the company has decided to buyback shares.
“We expect the buyback announcement at a 50 per cent premium to provide support to the stock price in the near term. We reiterate ‘overweight’ raing on the stock and as unchanged target price of Rs 1,100 as the reduction in cash because of buyback offsets the reduction in share count,” the brokerage said in a note on Wednesday.
Those at Morgan Stanley, meanwhile, maintained their ‘equalweight’ rating on the stock with a target of Rs 695.
One97 Communications Limited, the parent company of Paytm, approved a buyback of shares worth Rs 850 crore ($103 million) at a price not exceeding Rs 810, which is 50 per cent premium to Tuesday’s closing price, through the open market route.
The number of shares bought back will be 10.5 million at the maximum buyback price of Rs 810, representing 1.6 per cent of the paid-up share capital. The buyback amount represents roughly 7 per cent of the paid-up capital and free reserves as at March, 2022. Meanwhile, at the current market price, the indicative number of shares bought back would be around 16 million shares, which represents 2.4 per cent of the paid-up share capital. The company’s directors and key management personnel will not sell any shares during the buyback period.
On the bourses, shares of fintech company fell 3 per cent to Rs 525.60 amid profit booking on the BSE in Wednesday’s intra-day trade. The stock declined 4 per cent from its intra-day high of Rs 548.95.
Paytm board believes this buyback is a sign of confidence that the company is on a clear path to deliver cash flow profitability, and that the buyback will not have any impact on its growth plans in the near future or on its profitability plans.
“Witnessing Paytm’s momentum of financial performance, clear path to cash flow generation, and excess cash as a result, the Board has determined that a buyback of the company’s shares would be accretive for its shareholders,” the company said.
It further added that since there is surplus liquidity, the amount fetched from the buyback can be productively applied to drive long-term value creation, across technology, sales, marketing, and other areas.
JPMorgan expects the company to burn $33 million over the next three quarters before turning Ebitda breakeven (on an adjusted basis) in the second quarter of financial year 2023-24 (Q2FY24).
“It highlighted that the buyback won’t hamper any growth plans as it believes the company will generate excess cash after taking into account the investments required for growing the business. It
also expects tailwinds on cash generation from improving adjusted Ebitda. Paytm has $1.1 billion in cash as of September, 2022, and $127 million outlay of cash for buyback (including buyback tax) is not a significant amount,” it added.
Meanwhile, in the past one month, shares of Paytm have underperformed the market by falling 13 per cent, as compared to 1.4 per cent rise in the S&P BSE Sensex. Further, in the past three months, it has declined 25 per cent as against 3.5 per cent gain in the benchmark index. Over one year, it has tanked 65 per cent as compared to 7.6 per cent rally in the Sensex. The stock touched a record low of Rs 439.60 on November 24, 2022.
Currently, Paytm shares trade 76 per cent below its IPO price of Rs 2,150 per share. The stock had hit a record high of Rs 1,961 on its listing day, i.e. November 18, 2021.
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