Shares of One 97 Communications, the parent company of Paytm, continued gaining streak for the third straight session on Wednesday and gained as much as 14% during this period, in sync with the benchmark index Sensex, which rose nearly 2% in three trading days. The stock price has seen some buying momentum this week after the fintech major launched share buyback at a significant premium of 50% as compared to the current market price. The buyback plan has received mixed response from investors as some questioned the company’s move to use its fund to manage the stock price movement rather than putting the cash to grow the business. However, some brokerages believe that buyback won’t hamper any growth plans. The company has also ensured that there is surplus liquidity and it remained focused on building long-term value for its shareholders.
On Wednesday, Paytm share price opened marginally higher at ₹514.40, against the previous closing price of ₹512.95 on the BSE. During the session so far, the stock gained as much as 5.5% to hit an intraday high of ₹541.50, driven by strong volume trade. At 1:00 pm, 3.75 lakh shares changed hands over the counter on the BSE, compared with the two week average volume of 2.15 lakh scrips. Meanwhile, the BSE Sensex was trading marginally higher at 60,950 levels.
The payment solutions company launched share buyback scheme worth ₹850 crore at ₹810 apiece on December 21. Paytm has a market capitalisation (m-cap) of around ₹35,000 crore and a buyback size represent just 1.62% of the paid-up share capital of the company as of March 31, 2022.
The aggressive buyback comes at a time when the Paytm stock is trading at a significant discount to its intrinsic value. The stock has eroded investor wealth by 75% since its listing on November 18 last year, falling from issue price of ₹2,150 to the current market price of ₹540. In the last one year, Paytm shares have delivered a negative return of 61% to its shareholders, while it has dropped 25% in the past six months. The largecap stock, however, rose over 15% in a month. The stock hit an all-time low of ₹439.60 on November 24, 2022, while it touched a record high of ₹1,961.05 on its listing day.
According to global brokerages JP Morgan and Morgan Stanley, the buyback announcement will provide support to the stock price in the near-term. Both the brokerage firms see up to 104% potential rally in the stock price to ₹1,100 per share, saying that buyback won’t hamper any growth plans.
JP Morgan remains upbeat on Paytm, saying in its note that "the buyback announcement at a 50% premium to provide support to the stock price in the near term". The brokerage kept its price target unchanged at ₹1,100 per share, and reiterated 'overweight' rating on the stock. It highlighted the buyback won't hamper any growth plans as the company will generate excess cash after taking into account the investments required for growing the business.
Morgan Stanley has given 'equal weight' rating to the stock, with an 'attractive' industry view. It has pegged a price target at ₹695 per share. The brokerage noted the total outlay owing to the buyback would be around ₹1,050 crore and includes applicable buyback taxes. "Cash position has been strong at ₹9,180 crore as of Sept '22, and will remain strong post-buyback as well," it said.
