February 4, 2023

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SoftBank-backed Paytm Launches $103M Stock Repurchase Plan

Loss-making Indian payments firm Paytm has voted to buy back shares worth up to Rs8.5 billion after the group’s share price fell by two-thirds since its IPO 13 months ago.

The board on Tuesday night approved a plan to buy back a maximum of 10.5 million shares at Rs 810 (US$9.81) per share – up 50 per cent from Tuesday’s closing price of Rs 538.

Paytm founder and CEO Vijay Shekhar Sharma said he believes a buyback “will be of great benefit to our stakeholders at this stage.” He added, “We are confident of generating healthy revenues and cash flow to invest in sales, marketing and technology.”

The SoftBank-backed tech company was once a favorite of India’s booming start-up scene, raising $2.5 billion in India’s largest local currency IPO in November 2021, valuing Paytm’s parent One97 Communications at $20 billion .

But concerns over Paytm’s high valuation, how it would reach profitability and a global tech downturn have made it one of India’s worst launches and derailed a number of anticipated IPOs by other tech companies.

The company has been trying to convince investors it has a roadmap to profitability, and in its filing filed on Tuesday it said its buyback was “a sign of confidence that the company is on a clear path to cash flow profitability.” to achieve”. Paytm added that the buyback “will have no impact on its near-term growth plans or on its profitability plans.”

Some investors and analysts have criticized Paytm’s buyback plan, questioning the strategy of prop up the stock price rather than using the cash to fund the business.

“There’s little point shoveling money this way,” Institutional Investors Advisory Service, a proxy advisor, wrote in a note Monday ahead of the plan’s board approval.

Paytm’s share buyback “seems more of a face-saving move. . . and by the way, could provide an exit opportunity for some early investors,” said Deepak Jasani, head of retail research at HDFC Securities.

Sharmila Gopinath, a governance expert, said it seems “far too early” for a newly listed company to conduct a buyback. “You came to the market for a reason. They needed equity. But then you buy back shares within a year with no transparency as to why. Of course the market is concerned,” she added.

Paytm has been through a rough patch as a public company as investors worry about profitability and increasing competition in the digital payments space from Google and Indian conglomerates like Tata. It has also suffered some regulatory setbacks as the central bank rejected its application for a payment aggregator license last month.

In November, Paytm reported a 76 percent growth in operating income to Rs.19.1 billion for the quarter ended September. But it posted a mounting pre-tax loss of Rs.5.6 crore compared to Rs.4.7 crore a year ago.

The share price has recovered slightly from lows of around 440 rupees in November to over 540 rupees this month.

Some financiers believe the buyback reflects Paytm’s confidence that the company will generate free cash flow within the next 12 to 18 months.

The IIAS estimated Paytm had Rs 107.1 crore in cash after completing its IPO in November last year, having raised Rs 81.1 crore in fresh equity. According to IIAS, Paytm still had Rs.91.9 crore in cash and cash equivalents at the end of September.

“I think this is a statement to investors that they believe they are really going to break even,” said Gaurav Narain, co-head of equities at Ocean Dial Asset Management.