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Margin expansion continued; growth momentum sustained in focused products

Fino Payments Bank’s (Fino) Q4FY22 result was characterised by strong revenue growth in focused products like CASA (up 28% QoQ) and CMS (up 27% QoQ) resulting in PAT margin expanding to 6.2% vs 5.1% in Q3FY22. This led to PAT growing 25% QoQ to Rs176mn. Monthly run-rate of new CASA account opening stood at 0.025mn, and CMS monthly throughput stood at Rs30bn as on March’22, implying annulasied run-rate of 2.7mn new account opening (2mn in FY22) and CMS throughput of Rs360bn (Rs327bn in FY22) in FY23E. Revenue contribution from own channel witnessed a marginal uptick to 65% vs 64% in Q3FY22 and within that subscription-based revenue grew robust 15% QoQ. Subscriptionbased revenue now contributes 42% of total revenue, providing stickiness. This will help Fino bring in revenue stability. However, transaction-based revenue fell 2% QoQ mainly due to flattish throughout in remittance, MATM and AePS volumes. Notably, shift in revenue mix towards high-margin products like CMS (GP margin >45% vs blended GP at ~31%) and CASA (renewal GP margin at >75%) improves visibility with continuous improvement in PAT margin (6.2%) going ahead. Maintain BUY with a revised TP of Rs450 at 32x FY24E P/E (earlier: Rs 475) as we trim earnings estimates by 7% / 6% for FY23/24E, respectively, to factor investments towards technology and slowdown in MATM / AePS volumes.

* Strong growth in focused segment continued; MATM / AePS/ remittance throughput remained subdued. Fino has reported strong >20% QoQ growth in CASA and CME revenue; both are >40% margin products. It added >2mn new CASA customers in FY22 and the current monthly run-rate implies similar addition in FY23E. Combined revenue share of CASA + CMS now stands at 20% and the management expects it to reach >30% by FY24E. Revamped FinoPay app, increased volume in UPI and strategic acquisition of Paysprint will drive “off-us” conversion and lead to higher retention of the existing customers. MATM / AePS / remittance throughout remained flat QoQ owing to higher “on-us” conversion and intense competition. However, management believes it is transitory in nature and expects >15% YoY growth in FY23E.

* Higher subscription revenue share drove PAT margin expansion to 6.2% vs 5% in Q3FY22. Increased share of higher margin products like CASA + CMS to 20% vs 16% in Q3FY22 resulted in >100bps QoQ PAT margin expansion to 6.2%. However, sharp decline in MATM margin to 49% (52% in Q3FY22) and remittance margin to 15% (19% in Q3FY22) restricted further PAT margin expansion in FY22. Cumulative GP margin remained steady at 31.4% in Q4FY22. Going forward, management has guided for sustainable GP margin in the range of 32-34%. Higher growth in better-margin products like CMS and CASA may be partially offset by investment in building digital capabilities

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