Paytm’s buyback may just show shares are below company’s intrinsic value
Paytm has informed the exchanges about its plans to buy back shares as its management believes that it will be beneficial for its shareholders. The company said that its decision for the same comes from its strong financial position and liquidity. A board meeting will be held on December 13, 2022, for the approval of Paytm’s first-ever share buyback.
Paytm’s announcement has been welcomed by investors and analysts as the company’s stock surged sharply during Friday’s trading session.
While the details of the buyback will be disclosed by the company after the board meeting, there are speculations about Paytm’s move. While many analysts and experts have criticised the move, some are comparing the company’s proposed move to Warren Buffet’s Berkshire Hathaway, a top US multinational conglomerate that has an investment in Paytm.
A Twitter user pointed out how Paytm’s proposed buyback move is quite like how Berkshire Hathaway has done it in the past, at a point when management believes shares are under their intrinsic value and its cash reserves aren’t greatly impacted. It may be noted that Berkshire Hathaway is an investor in Paytm.
Lot of criticisms about the #PayTM buy-back announcement. My first reaction was : Why would a company with no free reserves use share premium to return monies to shareholders? That too after an IPO! Crazy!
Then I remembered $BRKA does buybacks & saw their policy.
Interesting!! pic.twitter.com/jPRQqqvbJw
— Ajay Rotti (@ajayrotti) December 9, 2022
The user also attached a Berkshire Hathaway release related to the share buyback from 2018, which said: “Under the amendment adopted by the Board of Directors, share repurchases can be made at anytime that both Warren Buffett, Berkshire’s Chairman and CEO, and Charlie Munger, a Berkshire Vice Chairman, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.”
Another reason behind the proposed buyback is Paytm’s net cash, cash equivalent and investable balance of Rs 9,182 crore as of September 2022.
Analysts at Dolat Capital, a brokerage firm, believe that buyback at the current valuation makes sense, given the declining need for organic capital allocation and “very compelling valuation for the Paytm business”.
“We view this move to be very positive and would enhance business confidence. Maintain Buy with TP of Rs.1,400,” Dolat Capital analysts noted.
Paytm made the proposed share buyback announcement after achieving consistently strong growth for multiple quarters due to its strong business model and subsequently rising monetization from businesses such as payments, devices and financial services. This is reflected in the company’s strong 76% y-o-y revenue growth at Rs 1,914 crore and 224% y-o-y surge in contribution profit at Rs 843 crore in Q2FY23.
The post Paytm’s buyback may just show shares are below company’s intrinsic value appeared first on BGR India.
Paytm has informed the exchanges about its plans to buy back shares as its management believes that it will be beneficial for its shareholders. The company said that its decision for the same comes from its strong financial position and liquidity. A board meeting will be held on December 13, 2022, for the approval of Paytm’s first-ever share buyback.
Paytm’s announcement has been welcomed by investors and analysts as the company’s stock surged sharply during Friday’s trading session.
While the details of the buyback will be disclosed by the company after the board meeting, there are speculations about Paytm’s move. While many analysts and experts have criticised the move, some are comparing the company’s proposed move to Warren Buffet’s Berkshire Hathaway, a top US multinational conglomerate that has an investment in Paytm.
A Twitter user pointed out how Paytm’s proposed buyback move is quite like how Berkshire Hathaway has done it in the past, at a point when management believes shares are under their intrinsic value and its cash reserves aren’t greatly impacted. It may be noted that Berkshire Hathaway is an investor in Paytm.
Lot of criticisms about the #PayTM buy-back announcement. My first reaction was : Why would a company with no free reserves use share premium to return monies to shareholders? That too after an IPO! Crazy!
Then I remembered $BRKA does buybacks & saw their policy.
Interesting!! pic.twitter.com/jPRQqqvbJw
— Ajay Rotti (@ajayrotti) December 9, 2022
The user also attached a Berkshire Hathaway release related to the share buyback from 2018, which said: “Under the amendment adopted by the Board of Directors, share repurchases can be made at anytime that both Warren Buffett, Berkshire’s Chairman and CEO, and Charlie Munger, a Berkshire Vice Chairman, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.”
Another reason behind the proposed buyback is Paytm’s net cash, cash equivalent and investable balance of Rs 9,182 crore as of September 2022.
Analysts at Dolat Capital, a brokerage firm, believe that buyback at the current valuation makes sense, given the declining need for organic capital allocation and “very compelling valuation for the Paytm business”.
“We view this move to be very positive and would enhance business confidence. Maintain Buy with TP of Rs.1,400,” Dolat Capital analysts noted.
Paytm made the proposed share buyback announcement after achieving consistently strong growth for multiple quarters due to its strong business model and subsequently rising monetization from businesses such as payments, devices and financial services. This is reflected in the company’s strong 76% y-o-y revenue growth at Rs 1,914 crore and 224% y-o-y surge in contribution profit at Rs 843 crore in Q2FY23.
The post Paytm’s buyback may just show shares are below company’s intrinsic value appeared first on BGR India.
