Paytm falls despite announcing Rs 850-crore share buyback plan

 

Despite the company's board of directors having approved a Rs 850 crore share buyback plan on December 13, shares of One 97 Communications, the company that runs Paytm, soon gave up their early gains on December 14 and traded down.

The company said that it would repurchase up to 10.5 million shares of the company at a price of up to Rs 810 per share, significantly more than the market expectation of Rs 650 per share.

Market participants, however, expressed dissatisfaction with the method the business will use to repurchase shares. Paytm announced that rather than using the considerably more popular tender process, it will buy back its shares on the open market.

The open market technique allows for the acquisition of shares at any price up to the cap set by the company since shares are bought back by a corporation through the market. In contrast, the tender process allows owners to offer their shares for purchase at a preset price determined by the corporation.

Furthermore, the open market approach does not provide a similar exemption, but the tender route reserves 15% of the share buyback for individual investors. Many market participants criticised Paytm for using the open market strategy, saying it would make the share repurchase programme a "non-event."

At the present price, according to Morgan Stanley, which rates the stock at equal weight, Paytm may repurchase up to 16 million shares.

The market has differing opinions on the goal of the company's buyback programme. Others questioned the sense of a losing firm using its capital to buy back shares, while some said the management was trying to control the stock price by effectively setting a floor on the share price.

According to brokerage company JP Morgan India, "we anticipate the repurchase announcement at a 50% premium to provide support to the stock price in the near term."

Disclaimer: Before making any investment decisions based on the preceding material, we urged consumers to consult with recognized specialists.