Shares of Paytm, an Indian digital payment company, have fallen 75% in the first year of listing, and share buybacks will be discussed
Paytm, an Indian digital payments start-up, will hold a board meeting on Tuesday to discuss share buybacks. Paytm shares have fallen 75 per cent since its listing last November.
Paytm, once India's most valuable start-up, listed on the Mumbai Stock Exchange in November last year. Although it was the largest IPO in India, it also suffered the biggest drop on its first day of listing (27%). Since its listing, Paytm shares have fallen 75%, the biggest drop in the first year of listing in the past decade.
On Friday, Paytm announced plans to buy back shares. Subsequently, the company's share price soared 7.2%. Today, Paytm shares fell 1.1% to 538.75 rupees. On Tuesday, Paytm's board of directors will discuss the number and price of the share buyback.
In response, Rahul Jain, an analyst at Dolat Capital Market, an investment management and financial consultancy in Mumbai, said: "given the declining demand for organic capital allocation and ensuring an attractive valuation, Paytm is likely to repurchase at its current valuation."
Jain also estimated that the size of the buyback could be between 8 billion rupees ($97 million) and 10 billion rupees ($120 million). In addition, Paytm may buy back the shares on the open market.
Aditya Kondawar, a partner at wealth management firm Complete Circle Capital, questioned the significance of Paytm's share buyback. He says startups like Paytm should invest cash in their business rather than trying to manage share prices.
"these start-ups should use cash in the right way to create profits and free cash flow for the company," says Condaval. "if capital is not allocated wisely, the cash will be exhausted and the space left for them will be very limited."
In response, Paytm said in an emailed statement that Indian companies cannot use the funds raised by IPO for share buybacks. If approved by the board of directors, any repurchase will use cash on the company's books. Paytm reported last month that it had a cash balance of 91.8 billion rupees ($1.1 billion) at the end of September.
