Loss-making Paytm’s parent company, One 97 Communications, announced on Thursday that its board will meet on December 13, 2022, to make a decision regarding a proposal for a share buyback. The business acknowledged that the buyback would be advantageous for shareholders, but in an unprecedented move, it is funding the buyback with money from prior rounds of financing.
Paytm reported that as of September 2022, it had Rs 9,182 crore in cash in hand to pay for the buyback. While firms like Infosys, TCS, and RIL have performed buy-backs using funds generated from their revenues, many claim that is not the case with Paytm because the company is not making any money.
For Paytm, funds obtained from additional investors were utilised to pay for the buyback. “This is a little strange. Since the company hasn’t been turning a profit, money obtained from investors is being used for the buyback. “This is unusual”, a fund manager who wished to remain anonymous stated. In 2021–2022, Paytm suffered enormous losses of Rs 2,325 crore, Rs 628 crore in the June quarter of 2022–2023, and Rs 588 crore in the September quarter.
Paytm shares have disappointed investors by dropping 75% from the IPO price of Rs 2,150 to Rs 540 at the moment. Due to the repurchase programme, it increased 6.5% within the course of one day on Friday. Over the course of a year, its market capitalization decreased by more over Rs 70,000 crore.
In November of last year, the business raised Rs 18,300 crore through the IPO.
A corporation may decide to repurchase shares if it believes that its stock is undervalued or has fallen too far. A corporation can raise the value of the remaining shares by purchasing outstanding shares, which lowers the overall supply of shares on the market. Increased promoter ownership, which serves as a defence against any possibility of aggressive business takeover, is another benefit of share buyback. In certain cases, promoters gave up their shares and took part in the repurchase as well.
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