Boom-time valuation and promoter’s negative cost of holding make the offer a risky proposition.
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FINO PAYMENTS OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 1,200 Cr |
| Fresh Issue | Rs 300 Cr (51,99,307equity shares) |
| Offer for Sale | 1,56,02,999 equity shares (Rs 900 Cr) |
| Face Value | Rs10 |
| Price Band | Rs 560 – 577 |
| Mkt/Bid Lot | 25 Nos. |
| Implied M-Cap | Rs 4801 Cr |
| Implied Equity Cap | Rs 83.21Cr |
| Free Float | 25% |
| Lead Manager | Axis Capital, CLSA India, ICICI Securities and Nomura Financial |
| Registrar | KFin Technologies |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening : 29-Oct-2021 | Closing : 02-Nov-2021 |
| Allotment : 09-Nov–2021 | Refunding : 10-Nov-2021 |
| Demat Credit : 11-Nov-2021 | Trading : 12-Nov-2021 |
The Offer
Navi Mumbai-based Fino Payments Bank Ltd is coming out with an IPO valued Rs 1,200 Cr (translating into 207.97 lakh shares at the upper price band). The public offer comprises of a fresh issue of Rs 300 Cr and an offer for sale of Rs 900 Cr. The offer is being made through the book-building route with a price band of Rs 560-577 for Rs 10 paid-up share.
Applicants for the IPO should bid for a minimum lot of 25 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on November 12, 2021. Axis Capital, CLSA India, ICICI Securities and Nomura Financial have been roped in as managers to the offer. Link Intime will be acting as registrar to the issue. The bidding opens on Friday, October 29 and closes on Tuesday November 2, 2021.
The company proposes to utilize the net proceeds from the fresh issue towards expanding its Tier – 1 capital base in order to meet its future capital requirements.
Lineage
Fino Payments Bank (Fino Bank) was originally incorporated as Fino Fintech Foundation in 2007. The original signatories to the Memorandum of Association were Rishi Gupta and Tarun Agarwal with a contribution of Rs 50,000 each. For almost a decade, the company remained dormant. In 2015 Fino PayTech Ltd was granted an in-principle approval by RBI to establish a payments bank and Fino PayTech pumped in Rs 300 Cr (297.1 lakh shares at the rate of Rs 101 each) in January 2017.
Pursuant to receipt of final approval by RBI in March 2017, the name of company was changed to the present one in April 2017 and its business operations of payments bank commenced in June 2017. Same month Fino PayTech infused further Rs 150 Cr at the same price of Rs 101 a share. In July this year Fino Bank issued a 0.75:1 bonus issue thereby taking its equity base to Rs 78 Cr. The entire equity is currently held by Fino PayTech who is now termed as the sole promoter of Fino Bank.
As regards the promoter’s background, Fino PayTech was originally incorporated as Financial Information Network and Operations (FINO) in 2006. The name of the company was changed to Financial Inclusion Network & Operations in September 2010. The name was changed to the present one in 2012. Fino PayTech is primarily engaged in providing technology-based solutions and services related to financial inclusion. It provides services to institutions such as banks, micro finance institutions, government entities and insurance companies.
Coming to the ownership, Fino PayTech has no identifiable promoter. The company has an equity base of about Rs 104 Cr. Bharat Petroleum Corporation Ltd is the largest shareholder (around 23%) which is identified as promoter group company. Three ICICI Group companies collectively hold 17.64% followed by Blackstone Capital Partners (14.71%), HAV3 Holdings 11.16%, International Finance Corporation (7.57%), Intel Capital Corporation (5.55%), etc.
Key Management
One of the original signatories to the Memorandum, Rishi Gupta (52) is the Managing Director and CEO of Fino Bank. He was an employee of Financial Information Network and Operations (erstwhile name of Fino PayTech). Prior to joining Fino PayTech, he had reportedly worked with International Finance Corporation, ICICI Bank and Maruti Udyog. BPCL and ICICI have one nominee director each on the board of Fino Bank.
Stakeholders
Currently, Fino PayTech is holding 780.14 lakh shares (100%) at an average cost of Rs 57.70 a piece. The fresh issue will enlarge the equity to 832.14 lakh shares and the offer for sale by the promoter will reduce its holding to 624.11 lakh shares or 75%. Whereas the cost of public holding would be Rs 577 a share, the promoters cost of residual holding would turn negative Rs 72.12 post offer for sale.
Business Model
Fino Bank is a fintech company offering a diverse range of financial products and services that are primarily digital and have a payments focus. It operates on an asset light business model that principally relies on fee and commission based income generated from its merchant network and strategic commercial relationships. Each merchant serves the banking and financial needs of its community which in turn forms the backbone of Fino assisted-digital ecosystem, referred to as “phygital” delivery model (i.e., a combination of physical and digital).
As the bank is highly dependent on its information technology systems, any weakness, disruption or failure in such systems, or breach of data, could adversely affect the bank’s operations and reputation. In fact, its success depends on its ability to innovate, upgrade and respond to new technological advances.
Financial Track
In last two fiscals Fino Bank has witnessed a phenomenal growth in its revenue though its growth was significantly curtailed in fiscal 2021 as compared to the previous year. In fiscal 2020 its revenue, mainly commission and brokerage, increased by Rs 300 Cr which was reduced to Rs 100 Cr in fiscal 2021. In the fourth year of operations, that is on the eve of its public issue, the bank has reported profit at the net level.
However, as compared to its current profitability (Rs 20 Cr), the accumulated deficit is huge at over Rs 300 Cr. Despite making losses, the company had collected more than Rs 404 Cr as share premium out of which Rs 33 Cr was capitalized in July this year. Through the present fresh issue, it aims to collect another Rs 295 Cr as share premium which will aggregate the share premium to Rs 666 Cr against an equity capital of Rs 83 Cr.
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Fino Payment Bank Financials (in Lakh) |
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| Year Ended |
Mar-21 |
Mar-20 |
Mar-19 |
| Interest Earned |
2026 |
1813 |
1915 |
| Commission/Exchange/Brokerage |
67556 |
60454 |
33050 |
| Gain/(Loss) on Assets |
-64 |
29 |
0 |
| Miscel Income |
9585 |
6846 |
2147 |
| Total Revenue |
79103 |
69140 |
37112 |
| Interest Expended |
954 |
987 |
553 |
| Operating Expenses |
75699 |
71253 |
42704 |
| Provisions/Contingencies |
402 |
103 |
94 |
| Pre-Tax Profit |
2047 |
-3204 |
-6238 |
| Pre-Tax Profit Margin % |
2.6 |
– |
– |
| Net Profit |
2047 |
-3204 |
-6238 |
| Equity Capital (Implied) |
8321 |
4458 |
4458 |
| Reserves (Implied) (Share Premium) |
67096 |
40447 |
40447 |
| Accumulated Loss |
30362 |
31898 |
28694 |
Valuation
Fino Bank’s promoter subscribed the shares at Rs 101 each in 2017. After the bonus the promoter’s average cost has become Rs 57.70 a share. The IPO price of Rs 577 thus gives a fabulous return to the promoter in four and a half years. Will the investors in the IPO get similar return?
The promoter invested Rs 450 Cr in 2017. By diluting less than one-fifth of the holding, the promoter will collect double the amount of investment (Rs 900 Cr) through the offer for sale. Post IPO, the promoter will still hold 75% of the enlarged equity at no cost which will decide the future course of the stock price after the lapse of the lock-in period.
As per the Payments Bank Licensing Guidelines, the promoter’s minimum initial contribution to the paid-up equity share capital of the bank is required to be at least 40% and locked in for a period of five years from the date of commencement of business (being, June 30, 2017). The promoter’s contribution is required to be diluted thereafter, in accordance with the Payments Bank Licensing Guidelines. Hence, one can expect significant movement in the share price after June 2022.
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HOW FINO BANK COMPARES WITH SBI CARDS AND INFIBEAM |
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Financials |
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| (Amount in Cr) |
Fino Bank |
SBI Cards |
Infibeam Avenue |
| Market Cap |
4801 |
106908 |
6076 |
| Borrowing |
181 |
10837 |
20 |
| Fixed Assets |
64 |
57 |
232 |
| Gross Revenue |
791 |
9713 |
686 |
| Pre-Tax Profit |
20 |
1458 |
82 |
| Tax |
0 |
474 |
12 |
| Net Profit |
20 |
984 |
70 |
| Equity Cap |
83 |
941 |
133 |
| Reserves |
671 |
5362 |
2755 |
| Accumulated Loss |
303 |
0 |
0 |
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Stock Features |
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| Current Price (Rs) |
577 |
1136 |
46 |
| Face Value (Rs) |
10 |
10 |
1 |
| Promoter Stake % |
75 |
70 |
31 |
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Profitability |
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| Net Margin % |
2.5 |
10.1 |
10.2 |
| Earnings Per Share |
2.40 |
10.45 |
0.54 |
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Discounting |
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| Price/Earnings |
240.1 |
108.7 |
84.0 |
| Price/Revenue |
6.1 |
11.0 |
8.9 |