Fino Payments Bank IPO

About the company:

Fino Payments Bank IPO

Issue Details

Dates: 29th October, 2021 to 2 November, 2021

Price Band: Rs. 560 to Rs. 577 per share

Minimum Lot: 25 shares

Minimum Application Amount: Rs. 14,000- Rs. 14,425

Total Issue Size: Up to Rs. 1,200 cr (OFS Rs. 900 cr, Fresh Issue Rs.300 cr)

Objects of the offer

Mumbai-based Fino Payments Bank intends to use the net proceeds from the fresh issue to strengthen its Tier – 1 capital base in order to satisfy its future capital needs. Furthermore, the proceeds from the fresh Issue will be used to cover the costs associated with the offer. Also, the bank anticipates reaping the advantages of listing the equity shares on stock exchanges.

Corporate Profile & Business overview

Fino Payment Bank Limited (Fino) is a Mumbai-based payment bank that provides a varied variety of financial services, such as CASA, micro-ATMs, Aadhar enabled payment system (AePS) transactions, domestic remittances, and so on, that are predominantly digital and have a payments emphasis. Fino is a completely owned subsidiary of Fino PayTech, which was founded in 2007 as a technology business with the goal of producing technical solutions.

The bank mainly intends to serve small businesses in rural and semi-urban regions that are unserved or underserved. As of March 31, 2021, the bank has an operating presence in more than 90% of India's districts. From a fee standpoint, the main products and services offered include remittance, micro-ATMs/AePS, and BC Banking. Some of these are old products or offers. Remittance (33 %) has the biggest revenue share, followed by micro-ATM (23 %), BC Banking (20 %), and AePS (11 %), while CASA (8 %), CMS (4 %), and third-party product distribution (2 %) form a relatively lower but growing part of its total revenues.

Financials & Key Performance Indicators

Let’s understand how and from where Fino Payment bank earns money- Being a payment bank, Fino cannot undertake credit exposures. The total loans as of FY21 stand at just Rs.1.3 mn. Fino’s customers utilise merchants to get CASA accounts, debit card transactions, domestic remittances, open banking capabilities (through API), withdrawing and depositing cash (via micro-ATM or AePS), and CMS. Customers' relationships are also used by businesses to facilitate cross-selling of third-party products such as gold loans, insurance, bill payments, and recharges. Customers pay commission to the bank for products and services (including cross-selling of third-party items), with a portion of that going to merchants.

On the financials front Fino recently turned profitable in the COVID-19 hit FY21 which provided much fillip to the growth of digital transactions, this led to a total throughput (all segments transactions) of Rs.1,329 Bn in FY21 itself a huge jump from Rs.945 bn in FY20. In FY21 its total income grew 14.4% YoY to Rs 791 cr, mainly driven by 15% YoY growth in fee income, on account of growth rise in total throughput (up ~40% YoY) and onboarding of 0.14 mn new merchants. The payment bank continues to report healthy CRAR in the last three years.

Key Strengths

·       Fino Payment Bank follows a unique Distribution, Technology and Partnership (DTP) framework which enables them  to serve their target market effectively and is designed to achieve improvements on scale, service and sustainability

·       The bank uses technology to efficiently reach the target customer segment in a cost-effective manner and enhance the product offerings through data analytics. The company’s technological capabilities include “phygital” delivery model, mobile banking applications for merchants and customers, digital on-boarding, e-KYC and in-house technical expertise etc.

·       The bank has established various strategic partnerships, including with ICICI Bank, Union Bank and BPCL, various Fintechs etc., which helps the bank to expand its product portfolio, greater customer awareness and increase cross-selling opportunities.

·       Bank’s merchant-led model is a capital light business strategy in respect of network expansion and except for referrals of third party loan providers, they do not offer any lending products and they do not hold credit risk for loans.

·       Fino Bank has an operational presence in over 90% of districts and with a goal to acquire more customers, they intend to continue expanding their network to drive deeper penetration and sustainable operations in these regions and communities, focusing on underserved and unserved individuals and micro-businesses that have limited or no access to formal banking channels.

    Key Risks

• A significant portion of its distribution network is located in the states of Uttar Pradesh, Bihar and Madhya Pradesh. As of March 2021, 45% of its own merchants were located in these states and any regional slowdown in these areas may adversely impact Fino’s financials.

• Since Fino is a payment bank it comes under supervision and inspection by authorities such as the RBI, any adverse observations from RBI or inability to comply with RBI’s stringent regulatory norms may impact its operations and business strategies

• The banking and finance industry is highly competitive and Fino faces rivals like PayTM, Airtel, Govt’s India Post Payment banks etc. Considering Fino Payment bank is operational only since 2015 it faces a consolidation risk going forward.

Peer Comparison

The business model of Fino Payments Bank derives its strength from its robust in-house technology, the versatility of operations, the scale of channels and in-depth customer understanding. Payments banks largely deal with low-value, high volume transactions. Hence, players like Fino, who have a large presence, are accessible across platforms, are able to keep their costs low and simultaneously provide a bouquet of services to customers. They complement traditional banks rather than competing with them. An estimated 500 million underbanked population and rapid adoption of digital payments augurs well for Fino.

But, considering the number of relatively popular IPOs coming up on similar dates we believe Fino Payment Bank’s IPO may not get the required attention/subscription. Therefore, We recommend investors to ‘AVOID’ this IPO from a listing gains perspective as investors can find better opportunities elsewhere.