One 97 Communications Ltd (OCL), that owns payments and financial services company Paytm, on Tuesday, December 13, announced that its Board has approved a proposal for buyback of equity shares. Paytm will undertake a buyback of up to Rs 850 crore (excluding buyback taxes and other transaction costs) at a maximum price of Rs 810 per share and has opted for the open market route through stock exchanges method, which is to be completed within a maximum period of 6 months.
All directors present, including all independent directors, voted unanimously in favour of the proposal. Witnessing Paytm's momentum of financial performance, clear path to cash flow generation, and excess cash as a result, the Board has determined that a buyback of the company's shares would be accretive for its shareholders.
Over the last 18 months, Paytm has improved monetisation and unit economics for payments business. At the same time, the lending business has shown tremendous growth, and has contributed to the bottom line. This is a clear demonstration of operating leverage, resulting in improvement of EBITDA before ESOP cost margin from (minus) 51 per cent in the quarter ending March 2021 to (minus) 9 per cent in the most recent quarter.
While Paytm will continue disciplined investments to drive long-term value creation, across technology, sales, marketing, and other areas, the Paytm Board has determined that there is surplus liquidity that can be productively applied to a buyback of shares. This decision has been taken after a detailed review of projected investment requirements to drive long-term value creation.
Paytm reiterated that proceeds from the IPO are not being directed towards the share repurchase plan.
The Paytm Board said that this buyback is a sign of confidence that the company is on a clear path to deliver cash flow profitability, and this buyback will not have any impact on its growth plans in the near future or on its profitability plans.
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. They remain focussed on long-term growth, and value creation for all stakeholders.
Sharma, Founder & CEO - Paytm 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."
In October and November 2022, Paytm's operating performance has shown strong growth in its lending business with the annualised run rate for the loan distribution business is now Rs 39,000 crore ($4.8 billion).
Paytm said it continued to maintain its leadership in offline payments with merchants paying subscriptions for payment devices exceeding 5.5 million.
Assuming a full buyback of Rs 850 crore, and applicable buyback taxes, the total outlay will be in excess of approximately Rs 1,048 crore.