IPO Analysis: Fino Payments Bank Ltd

IPO Rating: Avoid 

About the issue: 

Fino Payments Bank is a fintech company that offers financial products and services of digital nature with a focus on the payments segment. The company is coming out with its Initial Public Offering (IPO) of equity shares with a face value of Rs 10 per equity share. The issue size of the company is Rs 1,200.29 crore, with a fresh issue of Rs 300 crore and offer for sale of shares worth Rs 900.29 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 560 to Rs 577 pe per equity share. The IPO opening date is October, 2021, while it will close on November 2, 2021. It will be listed on the Exchanges on November 12, 2021. The IPO market lot size is 25 shares. A retail-individual investor can apply up to a maximum of 13 lots (325 shares or Rs 1,87,525). The net proceeds generated from the IPO will be utilized to augment bank’s Tier-I capital base to meet its future capital requirements and to meet the expenses in relation to the offer.  

Fino Payments Bank IPO Details:

About the company: 

Incorporated in 2017, Fino Payments is a growing fintech company offering a wide portfolio of digital financial products and services in India. The company has a pan-India distribution network and its' major products and services include: 
Current accounts and Savings accounts (CASA), 
Issuance of debit card and related transactions, 
Facilitating domestic remittances, 
Open banking functionality (through their Application Programming Interface), 
Withdrawing and depositing cash (via micro-ATM or Aadhaar Enabled Payment         System (AePS) and 
Cash Management Services (CMS). 

The company's merchants facilitate them in cross-selling their other financial products and services such as third-party gold loans, insurance, bill payments and recharges. Fino Payments also manages a large BC (Business Correspondents) network on behalf of other banks. 

For revenue generation, the company relies on fees and commissions from their merchant network and strategic commercial relationships. The company is looking to target a population of India which has low levels of financial literacy and technology use and typically does not have access to even basic banking services. In 2020, the Ministry of Electronics & Information Technology ranked Fino payments third among banks in facilitating digital transactions in India. According to CRISIL, the company also has the largest network of micro-ATMs and the third-highest deposit growth rate in FY' 2021. 

Payments bank vs commercial bank 

Payment banks cannot allow savings of more than Rs 1 lakh in any account 

They cannot lend money to their customers  

They cannot open a Fixed Deposit account or recurring deposits 

Competitive Strengths: 

• Unique DTP (Distribution, Technology, Partnership) network helps in better customer servicing 

• Focus on technology development and in-house technological expertise 

• Customer-centric and innovative business model 

• Highly experienced management team 

• Vision of socially inclusiveness and empowerment 

Financials 

The company derives the majority of its revenues through fees and commissions. Although the topline was growing for the last several years, the company was facing net losses. However, in FY21 it turned the tables and registered a net profit of Rs 20.5 crore. However, the net loss carried forward stands at Rs 303.6 crore as of June 2021.  

Industry Analysis 

CRISIL Research forecasts the digital payments value in India to reach Rs 3,500 trillion in the financial year 2025 from Rs1,379 trillion in FY21, translating into a CAGR of 25-27 per cent between financial year FY21 and FY25. The growth in digital transactions can be attributed to a rise in smartphones and mobile internet adoption, the convenience offered by digital payments, and the ubiquitous availability of payment solutions. 

Source: RBI, CRISIL Research 

The payment banks were licensed by RBI in 2017 with the primary objective of serving the rural segment or the under-served to increase their involvement in the banking culture. Initially, 11 payment banks were licensed by RBI, but currently, only six are operational which include the likes of Paytm Payments and Airtel Payments other than Fino Payments. The primary reason is that the profit margins are squeezed due to lower deposit limits.  

Peer comparison: 

Recommendation 

The company is greatly exposed to RBI regulations. For example, it is required to invest 75 per cent of its deposits strictly in government securities. The company is a wholly owned subsidiary of Fino Paytech Ltd which is backed by reputed investors such as ICICI Bank, Intel Capital Corporation, International Finance Corporation and others. Although the financials are recovering, the future prospects do not appear attractive.  

Based on the due diligence, we recommend our reader-investors to Avoid investing in the IPO.