Fino Payments Bank is a growing
fintech company offering a diverse range of financial products and services
that are primarily digital and have payments focus. It offers such products and
services to target markets via a pan-India distribution network and proprietary
technologies. Bank has grown its operational presence to cover over 90% of
districts end September 2021.
The bank has become profitable in
the fourth quarter of FY2020 and has been profitable in subsequent quarterly
periods. The bank has nearly tripled the number of transactions on its platform
from 154.02 million in FY2019 to 434.96 million in FY2021 and further recorded
123.38 million transactions in Q1FY2022. The gross transaction value has
increased from Rs 45684.80 crore to Rs 132930.69 crore in FY2021 and recorded
Rs 39035.99 crore in Q1FY2022.
Rishi Gupta is a Managing
Director & CEO of the bank and was a key employee of FINO and was
instrumental in the formation of business and operations of the bank.
The payment business operates an
asset light business model that principally relies on fee and commission-based
income generated from merchant networks and strategic commercial relationships.
Each merchant serves the banking and financial needs of its community, which in
turn form the backbone of assisted-digital ecosystem, referred to as "phygital"
delivery model (i.e., a combination of physical and digital). The use of
analytics on the data enhances the merchants ability to cross sell the third-party
products offered by the bank to existing customers, thereby increasing
potential revenue and opportunity to further customize products and services
offering.
A merchant-led distribution model
requires minimal capital expenditure cost because the on-boarding and setup
capital expenditure costs are borne by the merchant, and accordingly, allows
for operating leverage and efficient expansion in a timely manner.
Innovation, technology, and
customer trust lies at the core of all and forms the foundation for the entire
business model. The bank aims to continue to strengthen its focus within emerging India, presenting a large market opportunity and has typically been
overlooked by most of the large Indian financial institutions. This section of
Indian society is characterized by low levels of financial literacy and
technology use, lack of financial inclusion and typically does not have access
to even basic banking services and is often referred to as the unserved and
underserved population.
The products and services of the
bank includes various current accounts and savings accounts (CASA), issuance of
debit card and related transactions, facilitating domestic remittances, open
banking functionality (via Application Programming Interface (API)),
withdrawing and depositing cash (via micro-ATM or Aadhaar Enabled Payment
System AePS) and cash management services (CMS).
The bank has more than doubled
the Income derived from all financial products and services from Rs 351.97
crore in FY2019 to Rs 770.77 crore in FY2021 and recorded income of Rs 200.19
crore in Q1FY2022.
In addition, as a condition of
RBI License bank is not permitted to directly provide credit products and
thereby it is not exposed to the credit risk associated with underwriting
credit products.
The bank has a strong leadership
position within the Indian fintech industry. It ranked third among banks in
facilitating digital transactions end February 2020 and had the largest network
of micro-ATMs end August 2021. The bank is also the only payments bank to offer
a subscription-based savings account in India. The customer satisfaction, brand
and reputation have played an important role in making the bank an industry
leader in fintech products and services, as well as to further developing
business and improving market position.
The bank has significant
geographic coverage and position as a large-scale, leading technology-enabled
company with a diverse banking product offering also provides economies of
scale that yield significant operating efficiencies, supports future growth,
and helps to diversify some of risks, such as regional or geographical risks or
concentration risks
The unique distribution,
technology, and partnership (DTP) framework enables the bank to serve the
target market efficiently. DTP framework allows reaching a vast number of
customers in under-penetrated markets and keeping fixed costs low – all of
which supports the sustainability and scalability of business models. Open
banking API capability has also been an important element in the delivery of
financial products and services to customers.
Financial Inclusion Network
Operations (FINO) started as a technology company aimed at developing technological
solutions. On 7 September 2015, Fino PayTech was granted inprinciple approval
to set up a payments bank and the bank commenced operations as a Payments Bank
with effect from June 2017.
The bank is wholly owned
subsidiary of Fino Paytech, whose principal shareholders include marquee
investors such as ICICI Bank, Intel Capital Corporation, International Finance
Corporation, HAV3 Holdings (Mauritius), Blackstone GPV Capital Partners
(Mauritius) VI-B FDI and Bharat Petroleum Corporation.
The Offer and the Objects
The initial public offer (IPO)
consists of a fresh issue to raise Rs 300 crore issuing 5357143 shares at lower
price band of Rs 560 per share and 5199307 shares at the upper band of Rs 577
per share.
Further, the offer of sale (OFS)
comprises issuance of 15602999 shares to raise Rs 873.77 crore at lower price
band and Rs 900.29 crore at upper price band.
The promoter, Fino PayTech is
offering 15602999 equity shares out of its 100% shareholding. The shareholding
of Fino PayTech would decline to 75% post issue.
The issue is to be made through
the book-building process and will open on 29 October 2021 and will close on 2
November 2021.
Bank proposes to utilize the Net
Proceeds from the Fresh Issue towards augmenting its Tier-I capital base to
meet its future capital requirements. Additionally, the Bank expects to receive
the benefits of listing the Equity Shares on the Stock Exchanges.
Strengths
A unique distribution, technology,
and partnership (DTP) framework enables the bank to serve the target market
efficiently and improve on scale, service, and sustainability. Distribution is
having access to a vast and established merchant network, technology for
delivering products and partnerships leveraging the increased reach.
The bank has and aims to continue
to invest into technology throughout business with a goal to offer an
unparalleled user experience. In-house technology expertise and culture of
application-led innovation, provides an attractive value proposition to
stakeholders. The bank has a dedicated business technology team with
approximately 110 technical staff.
The merchant-led model is a
capital light business strategy in respect of network expansion.
Except for referrals of third-party
loan providers, the bank does not offer any lending products and does not hold
credit risk for loans.
An established technology
platform and consistent investment in further improvements, allows servicing a
wide pool of customers and catering to their diversified requirements.
Focus on and use of technology
throughout business assists in expanding reach throughout India without
incurring the relatively higher costs associated with traditional bricks and
mortar branch presence.
The bank incurs minimal capital
expenditure costs in connection with on-boarding merchants, while the
on-boarding and setup capital expenditure costs are borne by the merchant, such
as any existing physical premises, laptop, mobile based phone, internet
connectivity, micro-ATM and AePS devices and fingerprint and/or IRIS scanners,
and technology significantly simplifies merchant on-boarding and training
process, making it cost effective for the merchant and efficient for both
parties.
In addition to merchant network
which, as of June 2021 was 724,671, the bank leverages 17,430 active BCs to
reach the underserved and unserved populations in hard-to-reach locations
referred to the last mile of delivery.
The bank also uses strategic
commercial relationships with corporate entities, most notably with BPCL, to
expand operational reach, improve brand awareness and acquire new customers.
'FINO' brand has been in
existence for approximately 14 years, the bank benefited from operational
experience and expertise gained throughout that time.
Weaknesses
The COVID-19 pandemic has had and
may continue to have certain adverse effects on business
The primary drivers of revenue
are the fees and commissions charged on products and services, which accounted
for 95-98% of total income during the last three years.
The fees and commissions income
depend upon many factors including general macroeconomic conditions, the supply
or demand for a product and service, regulatory instructions, changes in
general banking activity and competitive factors.
The bank relies extensively on
information technology systems and any weakness, disruption or failure in such
systems could adversely affect operations.
The success of the bank depends
on the ability to innovate, upgrade, and respond to new technological advances.
Payment Banks in India are
subject to stringent regulatory requirements and prudential norms.
Payment Banks are required to be
owned and controlled by Indian residents and at least 26% of paid-up capital is
required to be held by Indian residents.
Promoter is required to ensure
that its shareholding in bank does not fall below 40% of the paid-up Equity
Share capital during the first five years from the date of commencement of
business operations
Payment Banks cannot undertake
lending activities.
Payment Banks cannot set up
subsidiaries to undertake non-banking financial services activities.
The other financial and
non-financial services activities of Promoter need to be kept distinctly
ring-fenced and not commingled with Payment Banks financial services.
Payment Banks are required to
invest minimum 75% of demand deposit balances in Government
securities/ Treasury Bills with maturity up to one year that are recognized by
RBI as eligible securities for the maintenance of Statutory Liquidity Ratio
(SLR) and hold maximum 25% in current and time/ fixed deposits with other
scheduled commercial banks for operational purposes and liquidity management
The bank has a limited operating
history as a Payments Bank. Also, the payments bank industry was only
proposed by the RBI in 2014 and therefore, the industry has a limited history.
Many merchants are in the states
of Uttar Pradesh at 70847, Bihar 58452 and Madhya Pradesh 38277, aggregating to
46% of their own merchants end June 2021. These three states also contributed
43% of total income in FY2021 and 47% in Q1FY2022. Any adverse changes in the
conditions affecting these regions can adversely affect business.
The bank is dependent on
merchants and strategic commercial relationships for service and product
distribution network, as well as the relationships with the BCs. Changes in
relationships with such entities, could impair their respective operations and
could have an adverse effect on business.
The banking and financing sector
in India is highly competitive and there is competition across all of products
and services from other payments banks, certain fintech companies, micro
finance institutions (MFIs), small finance banks (SFBs), as well as from
scheduled commercial banks, public sector banks, private sector banks,
non-banking financial companies (NBFCs) and foreign banks with branches in the
country.
Valuation
Fino Payments Bank has turned
profitable in FY2021 and its only second profitable payment bank after PayTM
Payments Bank. The bank has recorded 14% growth in total revenues to Rs 791.03
crore in FY2021 and 36% growth to Rs 206.24 crore in Q1FY2022. Net profit has
increased to Rs 20.47 crore in FY2021 from loss of Rs 32.04 crore in FY2020.
Net profit increased 69% to Rs 3.13 crore in Q1FY2022.
The TTM EPS on post-issue equity
works out to Rs 3.5 for the period ended June 2021. At the price band of Rs 560
to Rs 577, P/E works out to 160.7-166.5 times of TTM EPS for the period ended
June 2021.
Post-issue, the book value (BV)
will be Rs 58.5 at upper price band. The scrip is being offered at price to BV
multiple of 9.9 times at the upper price band.
The company is the first payment
bank in India to list on exchanges. The bank has 14 years experience in the
fintech space and almost four years into operations as a payments bank and plans
to stick to its asset-light format and emerging India-specific solutions as it
expands into new products and regions. The operational risk in the business is
negligible as merchants do all transactions. Business
is also not exposed to the credit risk associated with underwriting credit
products as payments banks are not permitted to lend.
Fino Payments Bank is more a fintech platform
rather than a payments bank. Another IPO bound fintech player, PB Fintech -
owners of Policybazar and Paisabazar platforms, is offered at price to book
value multiple of 7.8 times. In terms of EV to sales for TTM ended June 2021,
PB Fintech is offered at 43.0 times and Fino Payments Bank is offered at 5.9
times EV to sales.
Some of the concerns for payment bank
businesses are faster pace of digitization across the country, especially in
rural India. Depending on transaction fee-based banking solutions alone may not
be the best bet for fintech and neobanking companies. Some lending-based
banking approval becomes a necessity for these banks. The core payments bank
model has limited revenue scope. Four out of 11 RBI-licensed payments banks
already dropped out of the race even before fully launching their services. The
payment banks industry is new and has limited history.
Fino Payments Bank:
Issue highlights
|
For Fresh Issue Offer
size (in no. of shares)
|
|
- On lower price band
|
5357143
|
- On upper price band
|
5199307
|
Offer size (in Rs crore)
|
300
|
For Offer for Sale
Offer size (in Rs crore)
|
|
- On lower price band
|
873.77
|
- On upper price band
|
900.29
|
Offer size (in no of
shares)
|
15602999
|
Price band (Rs)*
|
560-577
|
Minimum Bid Lot (in
no. of shares )
|
25
|
Post issue capital (Rs
crore)
|
|
- On lower price band
|
83.37
|
- On upper price band
|
83.21
|
Post-issue promoter
& Group shareholding (%)
|
75.0
|
Issue open date
|
29-10-2021
|
Issue closed date
|
02-11-2021
|
Listing
|
BSE, NSE
|
Rating
|
40/100
|
Fino Payments Bank:
Financials
|
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2006 (3)
|
2106 (3)
|
Interest income
|
19.15
|
18.13
|
20.26
|
4.43
|
6.06
|
Interest expenses
|
5.53
|
9.87
|
9.54
|
2.92
|
3.06
|
NII
|
13.62
|
8.26
|
10.71
|
1.51
|
3.00
|
Other income
|
351.97
|
673.27
|
770.77
|
146.90
|
200.19
|
Net total income
|
365.59
|
681.53
|
781.49
|
148.40
|
203.19
|
Operating expenses
|
427.04
|
712.53
|
756.99
|
146.43
|
200.06
|
Operating profit
|
-61.45
|
-31.00
|
24.50
|
1.98
|
3.13
|
Provisions
|
0.94
|
1.03
|
4.02
|
0.12
|
0.00
|
PBT
|
-62.38
|
-32.04
|
20.47
|
1.85
|
3.13
|
Tax provisions
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
Net Profit
|
-62.38
|
-32.04
|
20.47
|
1.85
|
3.13
|
EPS*
|
-7.5
|
-3.9
|
2.5
|
0.9
|
1.5
|
*EPS annualised is on
post issue equity capital of Rs 83.21 crore of face value of Rs 10 each
Figures in Rs crore
Source: Fino Payments Bank
Issue Prospectus
|
|