IPO Note - Fino Payments Bank Ltd By Nirmal Bang
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BACKGROUND
Fino Payments Bank is a fintech company offering diverse range of financial products and services that are primarily digital and have a payments focus, generating fee and commission based income for the bank.
Details and Objects of the Issue
* The total issue size is Rs. 1200 Cr constituting (i) Offer For Sale of up to 1.56 Cr equity shares aggregating to Rs. 900 Cr by the promoter; and (ii) fresh issue of up to 0.52 Cr equity shares aggregating to Rs. 300 Cr. The Offer shall constitute 25.0% of the post-offer paid-up equity capital of the company.
* Bank proposes to utilise the proceeds from the fresh Issue towards augmenting its Tier – 1 capital base to meet its future capital requirements.
Investment Rationale
* Strong Industry Tailwind - Retail digital payments industry to grow at 40% CAGR till FY25E.
* An asset light and scalable business model.
* Continued focus on use of technology to improve operating leverage.
* Continued innovation leading to high growth products and diversified revenue streams.
* Highly experienced and committed leadership team, Marquee investor base in as promoters cum shareholders.
Valuation and Recommendation
Fino will be the only listed Payment Bank and one of the most prominent listed fintech company. As there are no listed payment banks, we take cues from M&A transactions in the unlisted space. We observe that during Sep 2021, Kotak Bank sold its 8.6% stake in Airtel Payments Bank to Bharti Enterprises for Rs. 300 Cr. This transaction values the payment bank at Rs. 3501 Cr or FY21 P/S of 5.6x. Fino is being valued at a 10% premium to this deal at FY21 P/S of 6.1x. Having demonstrated profitability during FY21 and scope for further improvement in ROE via operating leverage, we believe Fino is reasonably valued and offers good prospects for appreciation in future. We recommend “SUBSCRIBE” to the issue.
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