Paytm share price jumped 5 per cent in early deals on Friday, touching an intraday high of Rs on Rs 544 on NSE. The jump comes a day after the fintech company announced that the board of directors is meeting later this month to consider a share buyback proposal. In a regulatory filing, Paytm parent One97 Communications said, “We wish to inform you that a meeting of the Board of Directors of the Company is scheduled to be held on Tuesday, December 13, 2022 to consider a proposal for buyback of the fully paid-up equity shares of the Company.”
Paytm shares have been declining for a while now. However, the stock came under pressure recently when investor Softbank launched a block deal to sell shares worth around $200 million post the end of the lock-in period for pre-IPO investors. The stake sell led to a sharp correction of around 8 per cent intraday. So far this year, Paytm share have fallen around 60 per cent. Currently, the scrip is trading around Rs 532, down 72% from its listing price of Rs 1,950 apiece, and down 72.8% from its all-time high of Rs 1,961.05, which it touched on the listing day.
“The management believes that given the Company’s prevailing liquidity/ financial position, a buyback may be beneficial for our shareholders. The outcome of the Board meeting will be disseminated to the stock exchanges after conclusion of the Board meeting on December 13, 2022, in accordance with the applicable provisions of the SEBI Listing Regulations,” Paytm’s regulatory filing added.
What is a share buyback?
A buyback is when a company seeks to purchase its own stock in order to lower the number of shares accessible on the open market. There are a number of different reasons why a company would consider a share buyback, such as attempting to raise the value of the remaining shares by reducing the availability of the scrip or even preventing alternative shareholders from gaining a majority stake in the corporation.
Since a share buyback reduces the number of shares that can trade hands, it inadvertently raises the earnings per share (EPS). The value of the remaining stock is then higher since the EPS has been raised. Once a company buys its stock back, the shares are canceled since they are no longer publicly traded or held. The repurchase can definitely affect the company’s bottom line, since it decreases the cash available.
Buyback may lead to positive share movement in near-term
“SoftBank Group Corp of Japan sold shares in the stock after the IPO’s lock-up period expired which led the prices to fall to its all-time low of 438 on NSE. Buying back its own outstanding shares from existing shareholders may lead the stock prices upward in the near-term. Concerns about the emergence of a potential competitor by the country’s largest conglomerate lead recent fall in stock prices. So in near-term, prices are likely to bullish as buyback offer is typically at a premium to the current market price,” said Akhilesh Jat, Category Manager – Equity Research, CapitalVia Global Research.
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Foreign brokerages see upside on Paytm stock
In a recent interaction with analysts, Paytm management sounded optimistic on the company’s growth prospects and reasserted its guidance on turning profitable at an operating level next year. “Management stated that the journey to attain operating profitability (EBITDA before ESOP cost) via consistent margin improvement has exceeded its expectations in the past few quarters,” ICICI Securities, which attended the company’s analyst day meet, said in a note. Earlier on 28 November, foreign brokerage firm CLSA upgraded its outlook on Paytm stock from “sell” to buy” and added that cash burn should end in “another 4-6 quarters.” Several other foreign brokerages like JP Morgan, Morgan Stanley also see upside on Paytm shares.
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