Paytm Should Explain How It Can Manage With Less Cash After The Buyback: IiAS

Advisory firm Institutional Investor Advisory Services (IiAS ) has asked fintech giant Paytm on its plan of managing with less cash after the share buyback, which the company is planning to propose today in a board meeting. 

IIAS said in its note that Paytm raised INR 8,100 Cr in net IPO proceeds after factoring its existing cash. At the time of IPO, its growth strategy required funding support that was in excess of the IPO proceeds. 

“What has changed for the board to believe that its current liquidity is sufficiently in excess that it can be returned to shareholders?” IIAS reportedly has raised the question in a note.

Moreover, the fintech giant had announced its plans to undertake new initiatives at the time of its IPO. “It is only once these initiatives are rolled out that the board can satisfy itself that the war chest is sufficient. Therefore, the board must articulate how it has determined that the post-buyback liquidity will be sufficient to meet the unexpected investments in these new initiatives,” the note said.

Last week, the company said that its board will meet on December 13 to consider a proposal for share buyback.

Share buyback involves a company buying back its own shares from investors usually at a higher price than the prevailing market rate.

“… we wish to inform you that a meeting of the Board of Directors of the Company is scheduled to be held on Tuesday, December 13, 2022 to consider a proposal for buyback of the fully paid-up equity shares of the company…,” Paytm said in a regulatory filing with the stock exchanges.

While the buzz is that the company is using its IPO funds for the buyback, it may not be able to use proceeds from the IPO for the proposed share buyback plan, as rules restrict such a move.

Paytm said its management believes that the move would be beneficial for its shareholders considering the startup’s prevailing liquidity or financial position.

Last month, the lock-in period for its pre-IPO investors expired which led to a sell-off. SoftBank recently offloaded 4.5% of its stake worth about $200 Mn in a bulk deal.

In the second quarter (Q2) of the financial year 2022-23 (FY23), Paytm reported a loss of INR 571 Cr, up 21% year-on-year (YoY). Its revenue from operations soared 76% YoY to INR 1,914 Cr during the period under review.