Fino Payments IPO review (May apply)

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Review By Dilip Davda on October 26, 2021

•    A novel IT-based financial service company having a niche play.
•    Though it has turned the corner for the last three quarters, it has a negative average.
•    Carried forward losses remain a major concern.
•    Perhaps FPBL is charging a premium for its novel model.
•    Risk seeker/cash surplus investors may consider parking of funds. 

ABOUT COMPANY: 
Fino Payments Bank Ltd. (FPBL) is a growing fintech company offering a diverse range of financial products and services that are primarily digital and have a payments focus. It offers such products and services to the target market via a Pan-India distribution network and proprietary technologies, and since 2017, the company has grown its operational presence to cover over 90% of districts as of September 30, 2021. FPBL first became profitable in the fourth quarter of the financial year 2020 and have been profitable in subsequent quarterly periods.

The company operates an asset-light business model that is underpinned by the "phygital" model and relies on merchant networks and other participants. It has built a Pan-India presence with 724,671 merchants (own and API) as of June 30, 2021, which are typically located in Tier-2 and Tier-3 towns (based on population). Additionally, FPBL 54 branches and 130 Customer Service Points ("CSPs") as of June 30, 2021. Over the period, its branches tally declined while BCs tally marked a significant rise. 

It currently has approximately 17,430 active BCs across India. BCs are generally retail agents engaged by it to provide banking products and services on behalf of other banks (such as Union Bank of India, ICICI Bank and Canara Bank) and at locations other than traditional branches. BCs are authorised to perform a variety of activities including collection of domestic and international remittances, CASA account opening functions, payments made via AePS, bill payments, and mobile recharge, among others.

Through the "phygital" delivery model merchant's onboard customers and facilitate transactions, ensuring the network grows and products and services are more accessible to a broader range of customers throughout India. FPBL has a dedicated business technology team with approximately 110 technical staff as of June 30, 2021, to research, test and develop the technology. 

As of September 30, 2021, FPBL had an operational presence in over 90% of districts, and during the last three financial years and three months ended June 30, 2021, it acquired 696,513 new merchants across the network (including "own" and API channel merchants). In addition, it also had a number of strategic relationships with businesses/organisations across the country, including with a State Road Transport Corporation (the "SRTC") where it introduced a near field communication ("NFC") based contactless payments solutions for the mass transit system. With a goal to acquire more customers, the company intend to continue expanding its network to drive deeper penetration and sustainable operations in these regions and communities, focusing on underserved and unserved individuals and micro-businesses that have limited or no access to formal banking channels. 

ISSUE DETAILS/CAPITAL HISTORY: 
To part finance it's needs for augmentation of Tier-I capital base, FPBL is coming out with a maiden IPO of Rs. 1200.29 cr. worth of equity shares of Rs. 10 each. The company will be issuing fresh equity shares worth Rs. 300 cr. (approx. 5199300 shares at the upper price band) and an offer for sale of 15602999 shares (worth Rs. 900.29 cr. based on upper cap). The company has fixed a price band of Rs. 560 - Rs. 577 per share. The issue opens for subscription on October 29, 2021, and will close on November 02, 2021. Minimum application is to be made for 25 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25% of the post issue paid-up capital of the company. FPBL has allocated 75% for QIBs, 15% for HNIs and 10% for the Retail Investors.

The Book Running Lead Managers to this issue are Axis Capital Ltd., CLSA India Pvt. Ltd., ICICI Securities Ltd. and Nomura Financial Advisory and Securities (India) Pvt. Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the bank raised further equity at Rs. 101 per share between January 2017 and June 2017. It has also issued bonus shares in the ratio of 0.75 for 1 share in July 2021. Thus before IPO, it has emptied its coffer. 

The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 57.70 per share. 

Post-IPO, FPBL's current paid-up equity capital of Rs. 78.02 cr. will stand enhanced to Rs. 83.21 cr. With the upper cap of IPO price, the company is looking for a market cap of Rs. 4801.50 cr.

FINANCIAL PERFORMANCE: 
On the financial performance front, FPBL has posted a total income/net profit (loss) of Rs.371.12 cr. / Rs. - (62.38) cr.  (FY19), Rs. 691.40 cr. / Rs. - (32.04) cr. (FY20) and Rs. 791.03 cr. / Rs. 20.47 cr. (FAY21). For the first quarter of FY22 ended on June 30, 2021, It has earned a net profit of Rs. 3.13 cr. on a total income of Rs. 206.24 cr. Thus the bank has turned the corner for FY21 onwards. However, as of June 30, 2021, it has carried forward a loss of Rs. (300.50) cr.

For the last three fiscals, FPBL has posted an average negative EPS of Rs. - (1.39) and negative RoNW of - (5.38%). The issue is priced at a P/BV of 29.29 based on its NAV of Rs. 19.70. The IPO ad missing post issue NAV based on its price band levels. 

If we annualize FY22 earnings and attribute it to fully diluted post issue equity, then the asking price is at a P/E of around 382.12. Based on FY21 earnings, P/E will be around 234.55. Thus the issue is exorbitantly priced. This is perhaps it is being the first Indian technological company in financial services enjoying niche place and taking the benefit of changed market sentiment for such businesses.

COMPARISON WITH LISTED PEERS:
As per the offer documents, FPBL has no listed peers to compare with. 

DIVIDEND POLICY:
The bank has not declared/paid any dividend during the three immediately preceding financial years until the date of filing of this RHP. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
The four BRLMs associated with the offer have handled 47 public issues in the past three years, out of which 16 issues closed below the issue price on the listing date. 

Fino Payments Bank IPO FAQs