• As per Paytm's last earnings report, it has liquidity of ₹9,182 crore
One97 Communications Ltd, the operator of India's largest digital payments provider Paytm, may not use the proceeds of its mega initial public offering (IPO) for the proposed buyback of its own shares, sources said. Let's bar the move, adding firm use its strong liquidity for the purpose.
As per Paytm's last earnings report, it has liquidity of ₹9,182 crore.
The company's board is scheduled to meet on December 13 to consider the share buyback proposal. "The management believes that given the prevailing liquidity/financial position of the company, a buyback may be beneficial to our shareholders," it said in an exchange filing on Thursday.
After a highly anticipated listing late last year, the stock is down 60 percent in 2022 amid a global tech selloff and questions revolving around the firm's profitability, competitiveness and costs related to marketing and employee stock options.
Sources said the rules bar any company from using IPO proceeds for share buyback.
Paytm raised ₹18,300 crore through an IPO in November last year.
While the company said last month that it would turn free cash flow positive in the next 12-18 months, sources indicated that the firm is close to generating cash flow, which will be used for business expansion.
Amidst talk that the company is using the IPO funds for the buyback, sources said regulations prohibit any company from doing so. The proceeds from the IPO can be used only for the specific purpose for which it has been raised and that too is monitored.
In the recently concluded meeting with analysts, Paytm's top management highlighted that the company is close to generating cash flow, which will be used for its further expansion in the future.
Sources said that in all likelihood, Paytm will use its pre-IPO cash reserves for the buyback and will start using the generated cash flow for its expansion in the near future.
The company has not yet given any details of the buyback and size, and other details are likely to be disclosed after the board meeting.
The buyback is speculated to be priced below the IPO price.
In addition, the law specifically prohibits side deals or negotiated deals for buybacks.
As a general rule, a company conducts a repurchase program when it has surplus cash flow that remains idle, or if its shares are available at a price below intrinsic value, and therefore it is looking to retire capital. Let's have a good time.
In the case of Paytm, the buyback program meets the criteria.
The company reiterated in its second quarter results that it would achieve profitability by the end of September 2023.
Paytm's recent numbers show a 76 per cent year-on-year growth in revenue and 11 per cent reduction in losses quarter-on-quarter.
Paytm reported a loss of ₹2,325 crore in 2021-22. It posted a loss of ₹628 crore in the June quarter of 2022-23, which narrowed to ₹588 crore in the September quarter.
Its Friday closing price at Rs 545 on the BSE is lower than the IPO price of Rs 2,150.
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