Fino Payments IPO review (May apply)

Review By Dilip Davda on Oct 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

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. 

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.

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.

As per the offer documents, FPBL has no listed peers to compare with. 

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. 

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. 

Conclusion / Investment Strategy

The company is a novel technology company in the financial sector. It has established its play and enjoys a niche place. Perhaps due to such status, it is trying its maiden float with fancy pricing which is exorbitant on all counts. Though it has turned the corner for the last three quarters, its carried forward losses remain a major concern. For the last three fiscals, it has posted an average negative earnings and hence it has a negative P/E. Considering all these, risk seeker/cash surplus investors may consider investment for the long term.

Review By Dilip Davda on Oct 26, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: dilip_davda@rediffmail.com ).

Fino Payments Bank IPO FAQs

  1. 1. Why Fino Payments Bank IPO?

    The initial public offer (IPO) of Fino Payments Bank Limited offers an early investment opportunity in Fino Payments Bank Limited. A stock market investor can buy Fino Payments Bank IPO shares by applying in IPO before Fino Payments Bank Limited shares get listed at the stock exchanges. An investor could invest in Fino Payments Bank IPO for short term listing gain or a long term.

  2. 3. Fino Payments Bank IPO what should investors do?

    Fino Payments Bank IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Fino Payments Bank IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is Fino Payments Bank IPO good?

    Our recommendation for Fino Payments Bank IPO is to subscribe for long term.

  4. 5. Is Fino Payments Bank IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Fino Payments Bank IPO.

  5. 6. When will Fino Payments Bank IPO allotment status?

    The Fino Payments Bank IPO allotment status will be available on or around Nov 9, 2021. The allotted shares will be credited in demat account by Nov 11, 2021. Visit Fino Payments Bank IPO allotment status to check.

  6. 7. When will Fino Payments Bank IPO list?

    The Fino Payments Bank IPO will list on Friday, November 12, 2021, at BSE, NSE.