The board of directors of Paytm (One97 Communication) has approved the buyback of the shares of the company. This was approved in the meeting held on 13th December 2022. The certified copy of the resolution is here.

What is Buyback and why the Buyback?

What are the salient features of the Buyback?

Some of the key featutes of the Paytm buyback are as under:

• The buyback is by the Company of it’s fully paid-up equity shares having a face value of ₹ 1 (Rupee One only) each.

• The buyback is from the existing shareholders of the Company, pursuant to the open market route through the stock exchange mechanism (i.e., through the Stock Exchanges), at a price not exceeding ₹ 810/- (Rupees Eight Hundred and Ten only) per Equity Share.

• The “Maximum Buy-back Size” is ₹ 850 crores excluding the “Transaction Costs”.

• The “Maximum Buyback Price” is ₹ 810/- (Rupees Eight Hundred and Ten only) per Equity Share.

• The buyback will be by way of open market purchase through the Stock Exchanges.

• The Buyback period shall commence from the date of the passing of this Board resolution and shall continue in accordance with and in consonance with the provisions contained in the SEBI Buy-back Regulations, the Companies Act and the SEBI Listing Regulations (the “Buy-back Period”).

• Based on the Maximum Buyback Size and the Maximum Buyback Price, the indicative maximum number of Equity Shares bought back by the Company would be 10,493,827 Equity Shares (the “Maximum Buy-back Shares”), comprising approximately 1.62% of the paid-up Equity Share capital of the Company as of March 31, 2022, and if the Equity Shares are bought back at a price below the Maximum Buyback Price, the actual number of Equity Shares to be bought back could exceed the Maximum Buy-back Shares, but will always be subject to the Maximum Buyback Size and shall always remain within the overall limit of 25% of the total paid-up Equity Share capital of the Company.

• The Company shall utilize at least 50% of the amount earmarked as the Maximum Buy-back Size for the Buyback, i.e., ₹ 425 crores (Rupees Four Hundred and Twenty-Five crores only) (the “Minimum Buyback Size”) and based on the Minimum Buy-back Size and the Maximum Buy-back Price, the Company will purchase a minimum of 5,246,913 Equity Shares (the “Minimum Buy-back Shares”) in the Buyback.

• The Buy-back offer period shall not, in any case, exceed 6 (six) months from the date of opening of the offer of the Buyback, and the Board may, in its absolute discretion, decide to close the Buyback at any earlier date, subject to the amount utilized by the Company under the Buyback equalling or exceeding the Minimum Buy-back Size.

• The Company will be able to meet its liabilities as and when they fall due and will not be rendered insolvent within a period of one (1) year from the date of this Board Meeting approving the buyback.

• The Maximum Buy-back Size shall not exceed 10% of the aggregate of the total paid up Equity Share capital and free reserves as per the audited standalone financial statements and audited consolidated financial statements, respectively, of the Company, for the financial year ended on March 31, 2022.

• The Company shall not Buyback its Equity Shares from any person through negotiated deal whether on or off the Stock Exchanges or through spot transactions or through any private arrangement.

• All payment obligations relating to the Equity Shares bought back shall be completed before the last date for the Buyback.

• The Company shall not Buyback the locked-in Equity Shares and non-transferable Equity Shares till the pendency of the lock-in or until the Equity Shares become transferable.

• The Company shall not withdraw the Buyback after the public announcement has been made.

• All the Equity Shares bought back by the Company will compulsorily be extinguished, cancelled and destroyed within the timeline prescribed under the SEBI Buyback Regulations, and will not be held for re-issuance.

• The move to retire capital via Buyback using surplus cash is expected to create long-term value for its shareholders and the Buyback will not impact the Company’s growth plans in the near-future or its profitability plans.

• The proceeds of the initial public offering of the Company, which are earmarked for the purposes mentioned in the Prospectus dated November 11, 2021 of the Company, and funds borrowed from banks and financial institutions, shall not be utilised by the Company for the purpose of the Buyback.

Why the buyback could not halt the price fall of Paytm Stock?

The buyback announcement of Paytm could not cheer the investors and the same could not halt the price fall. The stock witnessed 2% price fall on 14th December and closed at ₹ 529.80 down by 1.78%.

The buyback price is up to ₹ 810 per Share and not at the rate. That means they can buy at whatever lower price available.

The maximum buyback is up to 1.62% of the paid-up Equity Share capital of the Company, which is a very small portion compared to the total outstanding shares in the market.

The Founder & CEO of Paytm Vijay Shekhar Sharma in their own blog said, “Over the last year, there is clear business momentum, and we are ahead of our plans. Looking at the monetisation opportunities in our core payment and credit business, we feel confident to generate healthy revenues and cash flows to invest in sales, marketing and technology. We value our shareholders and their journey with us in the public markets. I believe that a buyback at this stage will be immensely beneficial for our stakeholders and will drive long-term shareholder value.”

In our opinion this buyback is not a sufficient measure to take the price of the Paytm stock up but it will surely give some kind of a break from the further fall.

Key thing is Value Creation

The stock market is filled with individuals who know the price of everything, but the value of nothing.