Will Paytm's share buyback support its stock price? Here's what JPMorgan says

Foreign brokerage JPMorgan said the Rs 850 crore share buyback announcement by One 97 Communications (Paytm) at a 50 per cent premium will provide support to the stock price in the near term. The reduction in cash because of buyback offsets the reduction in share count and, therefore, the brokerage has kept unchanged at Rs 1,100.

Morgan Stanley, which has a target of Rs 695 on the stock, noted that the company's directors as well as key management personnel will not sell any shares during the buyback period. The board, Morgan Stanley said, highlighted that this is a sign of confidence that Paytm is on a clear path to deliver cash flow profitability and that this will not impact future performance. For now, this brokerage has equal-weight rating on the stock.

The fintech major on Tuesday announced a Rs 850-crore share buyback at Rs 810 apiece.

JPMorgan said the Paytm management believes that the buyback would not hamper any growth plans as it believes the company will generate excess cash after taking into account the investments required for growing the business. Paytm, JPMorgan said, also expects tailwinds on cash generation from improving adjusted Ebitda.

"Paytm has $1.1 billion in cash as of September 30 and $127 million outlay of cash for buyback (including buyback tax) in our view is not a significant amount. We expect it to burn $33 million over the next three quarters before turning adjusted Ebitda breakeven in 2QFY24E," JPMorgan said.

The brokerage expects the buyback announcement at a 50 per cent premium to provide support to the stock price in the near term.

Until completion of the buyback period, the company’s directors and key management personnel — Vijay Shekhar Sharma (Founder & CEO) and Madhur Deora (Executive Director, President & Group CFO) – will not be participating in any sale of shares.

In a release, Paytm Founder and CEO Vijay Shekhar Sharma said, “Over the last year, there is clear business momentum, and we are ahead of our plans. Looking at the monetisation opportunities in our core payment and credit business, we feel confident to generate healthy revenues and cash flows to invest in sales, marketing and technology. We value our shareholders and their journey with us in the public markets. I believe that a buyback at this stage will be immensely beneficial for our stakeholders and will drive long-term shareholder value.”