How Much Paytm Can Spend On A Potential Buyback

Paytm parent One97 Communications Ltd. has announced that it will consider a buyback even as its shares have wiped out nearly three-fourths of its value since the initial public offering.

While it was valued at Rs 1.39 lakh crore at an issue price of Rs 2,150 apiece in India's biggest IPO yet, that now stands at Rs 35,265 crore as the stock trades below the issue price.

The company will consider a repurchase of shares at its Dec. 13 board meeting. The management expects that given the company’s prevailing liquidity and financial position, a buyback may be beneficial for shareholders, it said in its disclosure to the stock exchanges.

Paytm raised Rs 8,300 crore in fresh equity on Nov. 18, 2021 as part of the Rs 18,300-crore IPO that saw marquee investors exit through offer for sale.

Of that Rs 8,300 crore, the company has so far utilised Rs 2,513.80 crore for growing and strengthening its ecosystem, including acquisition and retention of consumers and for general corporate purposes. 

SEBI guidelines allow a company to buy back up to 10% of the equity and free reserves--net worth--with a board resolution. A buyback above 10% of the net worth and up to 25% requires shareholder nod.

• While there are no specific buyback pricing guidelines, the average price of Paytm shares on the NSE was:

• Rs 560 per share in the last 30 days.

• Rs 495 per share in the last 15 days.

• 519 per share in the last seven days.

At the end of September, One97 Communications had a net worth of Rs 13,563.6 crore.

A buyback of up to 10% of the net worth will allow the company to repurchase shares worth up to Rs 1,356.3 crore, or up to 3.8% equity, at the current market price.

If it utilises up to 25% of its net worth after seeking shareholder nod, it can buy back shares worth Rs 3,391 crore or 9.6% of its stake at the prevailing price.

The question is whether shareholders, who acquired the shares after the listing, will allow use of cash beyond 10% of the net worth on a buyback when the business is unprofitable?

Paytm shares had scaled a 52-week high of Rs 1,645 per share on Dec. 9, 2021, and hit a 52-week low of Rs 439.60 on Nov. 24, this year.