With its stock price battered, Indian digital payments market leader Paytm NSE: (PAYTM) says it will buy back shares in a bid to boost performance for shareholders. If the market won't buy the stock, the company might as well...
Paytm says it will buy back up to 8.5 billion rupees (US$103 million) of its shares at prices of up to 810 rupees per share. That's a highly optimistic high end, with the stock currently trading at 531 rupees and change. It will buy the shares in the open market over the next six months. The company asserted that founder and CEO Vijay Shekhar Sharma will not be selling any stock.
"Our Board believes that this buyback is a sign of confidence that we are on a clear path to deliver cash flow profitability," the company says, "and this buyback will not have any impact on our growth plans in the near future or on our profitability plans."
Paytm was the largest Indian initial public offering in history when it went public in November 2021, raising US$2.5 billion. That's since been surpassed by the listing this May of the Life Insurance Corporation of India, or LIC, which sold US$2.7 billion worth of stock.
It was an inauspicious start to trading for Paytm's parent company and listed entity, One 97 Communications. The stock fell 27.3% on the first day of trade, having priced at the high end of its range, as I explained at the time. It remains 75.3% lower than its IPO price of 2,150 rupees.
Indian equities have been some of Asia's star turns during the pandemic. That should likely continue into 2023, with the economy set for solid growth next year and the central bank thought to be nearing the end of its hiking cycle.
In an all-too-familiar pattern, Indian shares are higher today only for Paytm to decline. The Dow-like Sensex is up 0.2% on Wednesday, as is the Nifty 50 index of large caps. One 97 Communications shares are down 1.5%, however, leaving them looking at year-to-date losses of 60.4%.
Paytm priced at the highest level that it could, and has fallen victim to investor concerns about high tech-stock valuations at a time the global economy is slowing.
Paytm is still losing money, and burning through cash. So it's an unusual step for a company yet to post a profit to start buying back its shares. But it clearly wants to give its long-suffering (well, short-suffering, if you consider its been public just over a year) shareholders a fillip.
The Sensex has muscled to gains of 5.9% in 2022, one of few markets worldwide to be in the black for the year. That builds on a strong 2021, with the Sensex up 24.0%, making it the strongest-performing major Asian market.
So the share-price performance of Paytm, which has backing from heavy hitters such as Softbank Group T:9984 and (SFTBY) , has been nothing but painful.
Its prospects continue to look promising, if it can find its way to turning a profit. One 97 said last month that revenues for the September quarter jumped 76%, although its net loss also widened.
It also has other issues to address. In March, the central Reserve Bank of India banned its newly formed Paytm Payments Bank from signing new customers. That move, which sent the company's shares to an all-time low, came as the RBI ordered the company to hire an independent I/T audit company to do a systems audit, with reports that the bank had inadvertently shared customer data with Chinese partners. The online bank hopes to build out a network of physical ATMs - as a payments bank, it can take deposits for savings accounts but can't loan cash to customers.
Indian prospects continue to look strong as it largely rides out the recession fears plaguing the rest of the world, not to mention the lockdown-inducted deterioration in China's economy, which had been helping other surrounding Asian nations to thrive. The Indian economy likely grew 6.7% this year. Due to the central bank raising rates, that may slow down to 4.5% next year, Nomura predicts, but still be one of the best showings in Asia.
Inflation is easing from 6.8% now to a likely 5.3% in 2023. That's very solid, considering that India frequently faces higher inflation rates than typical developed economies.
We will see if Paytm's stock ever turns around and makes the most of the country's solid economic underpinnings. Analysts question the wisdom of the company buying back shares when it is still losing money. But you have to admire the vote of confidence in the company and the pat on the back to shareholders from management, which surely remains frustrated by the stock's failure to date.
