Paytm’s Rs 850-crore share buyback may support the stock price in the near term, but the small size of the issue and its open market mechanism is not likely to make a significant difference to investors, said analysts. Paytm parent One97 Communications’ board has approved the share buyback at a maximum price of Rs 810 per share, down 62% from the IPO price of Rs 2,150. The share price of Paytm has fallen about 80% on NSE since listing, wherein the company and its existing shareholders raised Rs 18,300 crore.
“We expect the buyback announcement at a 50% premium (to Tuesday’s closing price) to provide support to the stock price in the near-term,” JP Morgan analysts wrote after the buyback details announcement. “The share buyback plan may support the stock price in near-term but recovery will still depend on the management delivering profitability,” said Akhilesh Jat, Category Manager – Equity Research, CapitalVia Global Research.
However, the small size of the buyback has failed to excite the market experts, who believe that it won’t make a difference either for the company or for the investors. “The share buyback plan will become a “non-event” (and prices reflected the same) due to Paytm’s use of the open market mechanism,” Jat said.
Paytm’s open market share buyback to leave small window for retail shareholders
Due to the fact that the buy-back is not being carried out through the tender offer procedure, which gives shareholders the opportunity to tender shares at a premium, the announcement is unlikely to have a big impact on the stock in the near term. Under the tendering process, retail investors are entitled to 15% of the share buyback, but there is no such exemption under the open market route, an expert said.
The buyback is expected to not have any major impact on the stock price, given the small size, according to some market experts. “After, what seems to have been a marathon board meeting #PayTM approves Buyback of Rs 850 Cr. This will hardly move the needle. Why give false signals to the market by keeping the maximum buyback price at Rs 810? When price is Rs 540, why talk of Rs 810? It should have been ~Rs 600,” said SEBI registered Investment Adviser Sandip Sabharwal in a tweet.
(CapitalVia Global Research Limited (Investment Advisor) is a SEBI Registered Investment Adviser with registration number-INA200001512 ; Type-Non-Individual ,validity (Perpetual). It does not have any financial interest in the subject companies recommended or any opinion concerning securities or public offers have been made, if any. All content provided is for informational purposes only, and shall not be relied upon as financial/investment advice.”