Why The Much-Awaited Paytm Buyback Could Turn Out To Be A Damp Squib

What’s in this for the investor who bought Paytm shares at Rs 2,150 during the IPO?

Muralidhar Swaminathan

14 Dec 2022, 06:13 PM IST

(Source: Company website)

For investors in Paytm’s IPO, who are sitting on huge losses, the buyback announcement is hardly a solace.

A huge disappointment for those who had bought it at Rs 2,150. Not that the market expected the buyback to be at or anywhere close to the IPO price. But investors did hope that Paytm would buy through tender offer at a certain premium to the current market price of around Rs 536. Both have not materialized. Facts first.

Paytm will buyback the shares at a maximum price of Rs 810 per share through open market purchase. The company will spend a maximum amount of Rs 850 crore over a period of six months.

But will they spend Rs 850 crore? No.

Will they buy at Rs 810 a share? Not necessarily.

The indicated price of Rs 810 is the maximum price. But the company is free to buy at a price lower than this from the open market. And, they can choose to buy any quantity within the approved number of shares.

So, what is guaranteed here? It’s Rs 425 crore and not Rs 850 crore, as it appears at first glance. The company will buy a minimum of 5.2 crore shares, which works out to Rs 425 crore at the maximum price. But they will not necessarily buy at the maximum price and may not have to spend all the Rs 425 crore earmarked for the purpose.

So, what’s in this for the investor who bought at Rs 2,150 during the IPO? Nothing much. It can at best offer some kind of a floor to the current market price and prevent the share from any steep fall.

Paytm has time and the board mandate to buy at any price, in any quantity within the limits mentioned above. For the next six months, Paytm can buy every trading day till it reaches the 4.26 crore share limit.

Will punters jump in, in the hope that the company will buy at Rs 850? If they do, it could well turn out to be a gamble unless the company’s business outlook turns dramatically in the next six months.

Note: Paytm responded to the BQ Prime analysis on Twitter with the following statement:

"We are confident of our business model, growth plans & have clear picture of revenues with cash flow generation soon. We are cognizant that markets & stocks globally have fallen. Therefore, buyback is at 50% premium to last closing price, to drive longterm value for shareholders."

(Updates an earlier version with Paytm's statement at the end)

Muralidhar Swaminathan is Consulting Editor at BQ Prime.