One Mobikwik IPO review (May apply)

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Review By Dilip Davda on December 7, 2024

•    The company is a fintech platform providing services to customers and merchants.
•    It posted growth in its top lines and improving trends in bottom lines till FY24.
•    It is gearing to add other services like investment, insurance to become all finance related services on digital platform.
•    It reported losses for Q1 of FY25 on account of provisioning of pre-funding cost adjustments.
•    Based on FY24 earnings, the issue appears aggressively priced.
•    Well-informed investors may park moderate funds for long term.

ABOUT COMPANY:
One Mobikwik Systems Ltd. (OMSL) is a platform business at its core, that has a two-sided payments network, consisting of consumers and merchants. The Company has acquired 161.03 million Registered Users and enabled 4.26 million Merchants to make and accept payments online and offline, as of June 30, 2024. The usefulness of its platform for new and existing consumers increases, as it adds newer products to digital credit, investments, and insurance verticals. As it continues to expand the portfolio of products under these verticals, it can transform the platform into an increasingly compelling offering for consumers while simultaneously enhancing its profitability and value. As a result, the Company has achieved Profit /(loss) for the year ended March 31, 2024 amounting to Rs.  14.08 cr. Company's aim is to leverage technology as the primary factor to facilitate financial inclusion for the underserved population in India.

OMSL's commitment to growth through frugal, digital-first innovations is demonstrated through bouquet of products at scale, and maintaining one of the lowest employee cost to revenue among digital financial product and services platforms in Fiscal 2023 (Source: RedSeer Report). Its Payment GMV has grown at an annual rate of 45.88% and Mobikwik ZIP GMV (Disbursements) has grown at an annual rate of 112.16% from Fiscal 2022 to Fiscal 2024. Its focus area covers payments, consumer credit, investments, Insurance etc. It has launched co-branded credit cards backed by fixed deposits.

According to the RedSeer Report, the financial services space in India is highly underpenetrated (across segments including lending, insurance, and mutual funds), which represents a big opportunity for a technology-first company like Mobikwik to capture a large market share. Moreover, its thorough examination of the market and customer insights reveals that consumers across the middle and low-income segments encounter numerous challenges while accessing financial services. Utilizing this valuable data, it has strategically identified product opportunities that grant it entry into sizable untapped markets.

The Company addresses the bankable Middle-India population, as represented. As per the RedSeer Report, presently, traditional market players usually serve the 20 - 25 million affluent and 90 - 100 million well-off individuals in the country. However, there exists a substantial untapped market of more than 500 million individuals in "middle India population", who are not actively addressed by the traditional market players. Among these, 120-130 million individuals are credit active, presenting a considerable opportunity. Additionally, there are more than 400 million consumers who are not currently engaged in credit activities but require access to financial products. Leveraging payments data and facilitating smaller loans enables Mobikwik to establish credit histories for these individuals, thereby contributing to increased financial inclusion. As of June 30, 2024, it had 2213 employees, including 726 permanent employees and 1487 contract employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO worth Rs. 572.00 cr. (approx. 20501792 shares at the upper cap). The company has announced a price band of Rs. 265 - Rs. 279 per equity shares of Rs. 2 each. The issue opens for subscription on December 11, 2024, and will close on December 13, 2024. The minimum application to be made is for 53 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 26.39% of the post-IPO paid-up equity capital. From the net proceeds of the IPO, the company will utilize Rs. 150.00 cr. for organic growth in its financial services business, Rs. 135.00 cr. for organic growth in payment services business, Rs. 107.00 cr. for R & D in data, ML and AI and product and technology, Rs. 70.29 cr. for capex in payment devices business, and the rest for general corporate purposes. 

The company has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are SBI Capital Markets Ltd. and Dam Capital Advisors Ltd., while Link Intime India Pvt. Ltd., is the registrar to the issue. SBICAP Securities Ltd. and Investec Capital Services (India) Pvt. Ltd., and Sharekhan Ltd. are the syndicate members.

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 34.75 - Rs. 3582.20 per share (based on Rs. 2 FV), between March 2017 and December 2021. It has also issued bonus shares in the ratio of 3 for 1 in June 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.41, and Rs. 0.47 per share. 

Post-IPO, its current paid-up equity capital of Rs. 11.44 cr. will stand enhanced to Rs. 15.54 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2167.45 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (loss) of Rs. 543.22 cr. / Rs. - (128.16) cr. (FY22), Rs. 561.12 cr. / Rs. - (83.81) cr. (FY23), and Rs. 890.32 cr. / Rs. 14.08 cr. (FY24). For Q1 of FY25 ended on June 2024, it marked a loss of Rs. - (6.62) cr. on a total income of Rs. 345.83 cr. 

According to the management, Q1 loss is attributed to provisioning of interest and other expenses incurred due to pre-funding in its operations as per accounting standards. Its diversification in other areas with proper registration and licensing from regulators like RBI, IRDA, SEBI, will add to its top and bottom lines in coming years. 

For the last three fiscals, the company has posted an average EPS of Rs. - (7.50) (basic) and an average RoNW of - (25.12) %. The issue is priced at a P/BV of 10.06 based on its NAV of Rs. 27.74 as of June 30, 2024, and at a P/BV of 2.97 based on its post-IPO NAV of Rs. 94.05 (at the upper cap). 

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a negative P/E due to losses reported for Q1. Based on FY24 earnings, the P/E stands at 75.73. Thus the issue appears aggressively priced. 

The offer document is missing its PAT Margins and RoCE margins data.

DIVIDEND POLICY:
The company has not paid any dividend for the reported periods of the offer document. It has already adopted a dividend policy in July 2021, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown One 97 Communications (PayTM)., as its listed peers. It is trading at a P/E of NA (as of December 06, 2024). It has also shown global listed peers i.e. Affirm Holdings, PayPal Holdings. However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 36 pubic issues in the past three fiscals, out of which 14 issues closed below the offer price on the listing date. 

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