Paytm share buyback at a 50% premium could support the stock in near term: JP Morgan

• One97 Communications, the Paytm operator, passed a board resolution to buy back shares worth ₹850 crore, with the buyback price fixed at ₹810.
• According to JP Morgan, the buyback could support the company’s stock price in the near-term.
• In December so far, Paytm’s share price has gained 10%.

One97 Communications, the operator of digital payments platform Paytm, announced a share buyback worth ₹850 crore, at a premium of 52.5% over its share price on Wednesday. According to analysts at JP Morgan, the buyback could support the Paytm stock in the near-term.

“We expect the buyback announcement at a 50% premium to provide support to the stock price in the near term,” JP Morgan said in a note. The brokerage maintained its ‘overweight’ rating on the stock and its target price of ₹1,100 by March 2023.

On the other hand, analysts at Morgan Stanley maintained their ‘equal weight’ rating along with the target price of ₹695.

Paytm says buyback is a ‘sign of confidence’

The Paytm share buyback price has been set at ₹810, as against the current market price of ₹531 on Wednesday. The buyback will be done through the open market route, and the company’s key management personnel will not participate in it. It said that the buyback will be completed within a six-month period.

In its regulatory filing, Paytm said that it has surplus liquidity, which it is utilising towards the buyback, after meeting its investment needs in technology, sales, marketing and other areas.

“Paytm board believes that this buyback is a sign of confidence that the company is on a clear path to deliver cash flow profitability, and this buyback will not have any impact on its growth plans in the near future or on its profitability plans,” the company said in its filing.

Paytm stock surges 10% in December till date – analysts remain optimistic

Paytm’s shares have gained 10% in December so far. The company reported an improvement in its monthly operating metrics in terms of its lending business and merchant subscriptions.

However, its shares are still down 75% from the issue price of ₹2,150.

In its Q2 update, the company reported an 8% sequential increase in its loan disbursals to 9.2 million, and said there’s ample room for growth ahead.

“While our loan distribution business has scaled significantly in the last few quarters, our penetration level for each product remains low, and gives us a long growth runway ahead,” the company said in its Q2 earnings conference call.

Overall, analysts remain positive about Paytm’s prospects. Analysts at JP Morgan expect Paytm to burn $33 million in cash over the next three quarters, but reach adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) breakeven in Q2 FY24.

Analysts at ICICI Securities maintained their ‘buy’ rating on the stock, saying “Paytm has been delivering better than our expectations as reflected in its operating performance over the past 2-3 quarters. This gives visibility around the company turning EBITDA-positive (before employee stock ownership plan cost) ahead of the guided timeline (Q2 FY24).”

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