PremiumPaytm's parent One 97 Communications stock will be in focus this week as the company board of directors is set to consider a buyback proposal on December 13. Paytm's buyback offer is expected to clear some air on the company's looming issues going forward. Majorly experts are optimistic about Paytm's buyback move. On Monday, Paytm announced its operating performance for the first two months that ended November 2022. The Noida-based digital payments giant continued to sustain growth in payments and loan distributions.
At around 2.37 pm, Paytm shares traded at ₹539.05 apiece down by 1.09% on BSE. The stock has touched an intraday high and low of ₹554.70 apiece and ₹535.35 apiece respectively. The company's market cap is around ₹34,973.15 crore.
Last week, in its regulatory filing, Paytm said, "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's management believes that given the company's prevailing liquidity/financial position, a buyback may be beneficial for its shareholders, as per the filing.
Brokerage firm Dolat Capital has stated that the Paytm buyback will be a clear cloud on looming concern. In the brokerage's view, Paytm's buyback at the current valuation makes lots of sense given the declining need for organic capital allocation and very compelling valuation for the Paytm business. Thereby, the stock brokerage views the buyback as positive and would enhance business confidence for the company.
In its note, the stock brokerage said. "We believe the following factors would have led to this decision - Business traction both on growth and profitability is trending faster than what was anticipated at the time of IPO. Annualised burn rate at current rate is less than $75 million. To turn FCF positive by H1FY24 and EBIDTA positive ideally by H2FY23 (accumulated 30% of incremental revenues into incremental EBIDTA on LTM basis, while Contribution margins stands at 44%, suggesting further room for improvement)."
Further, it added, "We believe the Buyback announcement would take away multiple investor concerns around profitability and cash generation roadmap of the business, any further pressure from potential supply from large investors in near future, and would boost confidence on Management’s optimal capital allocation practice and potential for further earnings accretion in future through Buyback route."
Meanwhile, Kunal Shah of ICICI Securities mentioned that “the management was confident about becoming an FCF-generating company (net of CAPEX) in next 12-18 months driven collectively by improved profitability across payment and financial services distribution, cloud, etc. So it seems to be ahead of time and will be a surprise to the market."
After the analyst meeting, Shah added, "Paytm has exceeded expectations in the past few quarters and added that the company remains “ahead of the guided timeline to achieve operating profitability". It also said that the company should start generating free cash flow (FCF) in the next 12-18 months. It also maintained a ‘BUY’ rating for the Paytm stock at a target price of ₹1,285."
Dolat Capital has also reiterated its stock rating to BUY and continued to maintain Paytm’s stock at a Target Price of ₹1,400.
In the first two months of Q3FY23, the company's value of loans disbursed jumped by 374% y-o-y to ₹6,292 crore, while the number of loans disbursed grew 150% y-o-y to 6.8 million cumulative loans. Also, the company continued to strengthen its leadership in offline payments, with more than 5.5 million merchants now paying a subscription for payment devices. Meanwhile, its total merchant GMV processed through its platform aggregated to ₹2.28 lakh crore. The company's Super App continues to see growing consumer engagement with an average MTU of 84 million in the two months of Q3FY23 that ended November 2022.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.