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A unique business model; niche position in untapped rural India

We initiate coverage on Fino Payments Bank (Fino) with BUY rating and TP of Rs475. Fino is uniquely positioned to capture growing opportunities in rural India, led by deep-rural products like MATM (~51% market share as on Aug’21) & AEPS, tailor-made CASA accounts for under-served population, and payment app called “FinoPay” targeting rural population. Further on B2B2C side, it offers CMS service (110 partners) and distribution of gold / business loans. Diversified revenue stream, merchant-led asset-light distribution model and deep rural network with operational presence in over 90% districts are key features of its unique business model and also the primary reason behind Fino turning profitable within 12 quarters. Notably, unlike other players, Fino is rapidly building organic customer base (~3.4mn) and merchant base (~0.8mn) without burning cash; annualised PAT margin stands at 4% with total annualised throughput of ~Rs1.7trn as on Sep’21.

* Unique business model – omni-channels and phygital ecosystem for emerging India. Fino has built a unique business model with a perfect blend of physical and digital infrastructure. Unlike conventional way of branch-led-business sourcing, it has strategically built network via merchants - these merchants provide Fino’s banking products and services to the end customers. It has develop in-house app called “Fino Mitra” which facilitate & process banking transactions for customers at merchant point. Digital savvy customers can directly avail banking services from FinoPay, a digital solution that utilises the Unified Payments Interface (“UPI”) for secure and fast personal banking and merchant payments, among other functions, and targets retail customers.

* Superior management execution reflects 70%+ / 45%+ throughput / revenue CAGR driven by timely product launch. Fino’s growth journey, as a payments bank, has been characterised by timely launch of new products, and scaling those aggressively to become one of the top 5 players in most categories. Total throughput CAGR of 70%+ and revenue CAGR of 45%+ between FY18-21 have been driven by launch of MATM (currently enjoys ~51% market share) & AEPS in FY18, CMS (~110 partners) in FY19, subscription-based CASA products in FY20 (2.5mn+ CASA accounts) and gold loan distribution in FY21. Fino enjoys strong cost flexibility with ~70% variable cost, given it incurs minimal capital expenditure costs in connection with merchant on-boarding, because setup capital expenditure costs are borne by the merchant. Further, it purely acts as loan distributor, and hence, we believe does not hold any credit risk.

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