Paytm buyback fails to impress proxy advisors
1 min read . Updated: 09 Dec 2022, 10:19 PM IST
PremiumPaytm has a cash reserve of nearly ₹9,182 crore; however, it is an unusual move for a loss-making business to buy back shares from the public.
Mumbai: One97 Communications Pvt. Ltd could put its cash reserve to better use than pursue a buyback, and it’s not clear whether the company has achieved the objectives of its initial public offering, proxy advisory firms said, a day after the parent of Paytm said it plans to consider a buyback on 13 December.
Even though the company did not provide any details about the buyback—such as whether it will be done through a tender or through the market—or the exact quantum, investors cheered the move, with the Paytm stock closing 7.19% higher at ₹544.75 on Friday. Shares of Paytm, which went public last year, have fallen 75% since the issue price of ₹2,150. “All investors and the company would be well off, if Paytm was using the funds to boost their business and move towards profitability, than use the funds towards buyback," said Shriram Subramanian, co-founder InGovern Research Services. “Any buyback will be a drop in the ocean as far as the market price concerned. They could be tending to their business with the extra cash, rather than pursuing a buyback," he said.
The company said on Thursday that “a buyback would be beneficial" for shareholders in light of the prevailing conditions. Paytm is likely to use only 20-25% of the cash reserves for a buyback. Paytm has a cash reserve of nearly ₹9,182 crore; however, it is an unusual move for a loss-making business to buy back shares from the public.
“Within one year of raising capital via an initial public offering, the company is returning the money to investors via a buyback. The issue is whether the objects for which the company raised the money got fulfilled or not," said J.N. Gupta, founder, Stakeholder Empowerment Services.
“If the object of the issue is fulfilled, and you are left with surplus, then on what basis was the IPO issue size estimated. If the object is not fulfilled and there is a change, there is a procedure prescribed in the companies act, which the company needs to follow," he added.
A Paytm spokesperson did not respond to a query.
Paytm shares fell as low as ₹475.55 in late November, after a Macquarie report flagged a potential risk to Paytm from new entrants such as Jio Financial Services, but have recovered since then. Paytm has maintained that the company aims to achieve EBITDA profitability ( without Esop expenses) by September 2023. It expects to achieve cash flow profitability in 12-18 months, the company said at an analyst meet in the first week of December.
Late in October, lifestyle retailer FSN E-Commerce Ventures Ltd, better known as Nykaa, found itself at the at the centre of a controversy after shifting the record date of its bonus share issue from 3 November to 11 November, coinciding with the ex-bonus date with the end of the anchor lock-in.
This was done to ostensibly reduce pressure on the stock from imminent sales by anchor investors, but that didn’t alleviate the selling pressure, with investors dumping the stock once the shares began getting credited to their demat accounts. After the bonus issue, the sale would be subject to short-term capital gains tax.
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