Lossmaking Indian payments company Paytm has voted to buy back up to Rs8.5bn worth of shares, after the group’s stock price plummeted two-thirds since its initial public offering 13 months ago.
The board approved a plan on Tuesday evening to repurchase a maximum of 10.5mn shares at Rs810 ($9.81) rupees per share — 50 per cent more than Tuesday’s closing price of Rs538.
Paytm’s founder and chief executive Vijay Shekhar Sharma said he believed a buyback “at this stage will be immensely beneficial for our stakeholders”. He added: “We feel confident to generate healthy revenues and cash flows to invest in sales, marketing and technology.”
The SoftBank-backed technology company was once a favourite of India’s booming start-up scene and raised $2.5bn in India’s biggest IPO in local currency terms in November 2021, valuing Paytm’s parent company One97 Communications at $20bn.
But concerns about Paytm’s high valuation, how it would reach profitability and a global tech downturn has turned it into one of India’s worst market debuts, derailing a string of expected IPOs by other tech companies.
The company has sought to convince investors it has a plan to profitability, and in its filing on Tuesday said its buyback was “a sign of confidence that the company is on a clear path to deliver cash flow profitability”. Paytm added that the buyback “will not have any impact on its growth plans in the near future or on its profitability plans”.
Some investors and analysts have criticised Paytm’s buyback plan, questioning the strategy to shore up its share price rather than using the cash for the business.
“There is little merit in bucketing cash this way,” wrote Institutional Investors Advisory Service, a proxy adviser, in a note on Monday ahead of the board’s approval of the plan.
Paytm’s share buyback “seems to be more like a face-saving action . . . and could incidentally provide an opportunity for some early investors to exit”, said Deepak Jasani, head of retail research at HDFC Securities.
Sharmila Gopinath, a governance expert, said it seemed “far too soon” for a newly listed company to be doing a buyback. “You came to market for a reason. You needed equity. But then within a year, you are buying back shares, without transparency as to why. Of course, the market is concerned,” she added.
Paytm has endured a difficult period as a public company as investors worry about profitability and mounting competition in the digital payments sector from Google and Indian conglomerates such as Tata. It has also suffered some regulatory setbacks, with the central bank rejecting its application for a payments aggregator licence last month.
In November, Paytm reported 76 per cent growth in revenue from operations to Rs19.1bn for its quarter ending in September. But it posted a widening loss before tax of Rs5.6bn, compared with Rs4.7bn a year ago.
Its share price has recovered slightly from lows of around Rs440 in November to above Rs540 this month.
Some financiers believe the buyback reflects Paytm’s confidence that the company is going to generate free cash flow within the next 12 to 18 months.
IIAS estimated that Paytm had Rs107.1bn in cash after its IPO closed in November last year, having raised Rs81.1bn in fresh equity. By the end of September, Paytm still had Rs91.9bn in cash and cash equivalents, according to IIAS.
“I think this is a statement to investors that they believe they’re genuinely going to break even,” said Gaurav Narain, co-head of equities at Ocean Dial Asset Management.