RNFI Services NSE SME IPO review (Apply)

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Review By Dilip Davda on July 17, 2024

•    The company is engaged in providing fintech solutions in B2B and B2B2C models.
•    It marked inconsistency in its top lines for the reported periods. 
•    Its bottom line marked wild fluctuations with mega profits for FY24. Management attributes this surge to their expanded retail money exchange services.
•    Based on FY24 earnings, the issue appears fully priced. 
•    Considering bright prospects ahead, investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
RNFI Services Ltd. (RSL) is a tech enabled platform offering financial technology solutions in B2B and B2B2C financial technology arena through an integrated business model via online portal and mobile application, focusing on providing banking, digital and Government to Citizen ("G2C") services on PAN India basis. It segregates its business primarily into four (4) segments namely (i) business correspondent services; (ii) non-business correspondent services; (iii) full-fledged money changer service; and (iv) insurance broking. As on the date of this Red Herring Prospectus, it is providing full-fledged money changer service through its Material Subsidiary (wholly owned), namely RNFI Money Private Limited which is RBI registered full-fledged money changer ("FFMC") and insurance broking service through its wholly-owned Subsidiary, namely Reliassure Insurance Brokers Private Limited which is registered as a direct broker (Life and General) with IRDAI. The company is providing its services under "Relipay" brand. 

RSL acts as a bridge to ensure the availability of tech enabled financial services throughout the country, including to the underserved population in remotest of the places by connecting them to formal financial channels. It also provides business and income-generating opportunities for shopkeepers and network partners by enabling them to provide banking, digital and government services to the end customers through its web and mobile application via an assisted model. As on the date of this RHP, it has entered into arrangements with eleven (11) financial institutions including National Private and Public sector banks, Payment banks wherein it is engaged as their business correspondents for providing financial inclusion services. As a business correspondent, it also provides doorstep services for KYC authentication of the financial institution's customers for usage of prepaid cards and Fastag service across India.

The company started its journey in the year 2015 in the fintech sector with a mission to empower rural India by promoting the accessibility of financial technology with simple and efficient financial solutions and contribute to the development of a DIGITAL BHARAT and a vision to become one of the leading financial solutions provider. Since commencement of its operations, the company has achieved remarkable milestones which is evident by the fact that as on March 31, 2024, it processed over 115 lakhs monthly transactions, and as on June 3, 2024, it is present in over 28 States and 5 Union territories, 17,964 pin codes across the Country through its distribution network. As on March 31, 2024 it has an employee strength of 1,405 employees on a standalone basis, playing a major role in catalyzing its growth. As of June 03, 2024, it had 362515 front-end distribution network partners. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6744000 equity shares of Rs. 10 each to mobilize Rs. 70.81 cr. at the upper cap. It has announced a price band of Rs. 98 - Rs. 105 per share. The issue opens for subscription on July 22, 2024, and will close on July 24, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.03% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 25.00 cr. for working capital, Rs. 10.81 cr. for capex on purchase of Micro ATMs/Laptops/Servers, Rs. 5.30 cr. for strengthening its technology infrastructure, and the rest for general corporate purposes. The RHP has not indicated any provisions for its spending on inorganic growth though it is planning for the same. 

The issue is solely lead managed by Choice Capital Advisors Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Choice Group's choice Equity Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 1887 (on the basis of Rs. 10 FV) in April 2023. It also issued bonus shares in the ratio of 177 for 1 in November 2023. The average cost of acquisition of shares by the promoters Rs. NIL per share. 

Post-IPO, company's current paid-up equity capital of Rs. 18.21 cr.  will stand enhanced to Rs. 24.95 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 262 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 of Rs. 190.80 cr. / Rs. 5.55 cr. (FY22), Rs. 1069.40 cr. / Rs. 4.89 cr. (FY23), and Rs. 930.03 cr. / Rs. 9.96 cr. (FY24). Thus while it posted inconsistency in its top lies for the reported periods, its bottom line fluctuated wildly. According to the management, their major thrust for retail money exchange segment yielded the benefits and they are focusing to enhance their play. 

For the last three fiscals, it has reported an average EPS of Rs. 4.42, and an average RoNW of 39.36%. The issue is priced at a P/BV of 6.05 based on its NAV of Rs. 17.35 as of March 31, 2024, and at a P/BV of 2.56 based on its post-IPO NAV of Rs. 41.04 per share (at the upper cap). 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 26.31, and based on FY23 earnings, the P/E stands at 53.57. Thus the IPO appears fully priced, discounting all near term positives. Its debt/equity ratio stood at 1.02 as of March 31, 2024 raising concern. According to the management, this debt is fully secured against their property investments.

For the reported periods, the company has posted PAT margins of 2.95% (FY22), 0.46% (FY23), 1.06% (FY24), and RoCE margins of 33.25%, 24.28%, 29.74% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the last five fiscals preceding the date of this RHP. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown BLS E-Serve, and Mos Utility as their listed peers. They are trading at a P/E of 67.9 and 48.8 (as of July 16, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from Choice Capital in the last two fiscals (including the ongoing one), out of the last 2 listings, all listed with premiums ranging from 31.77% to 66.67% on the date of listing. 

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