One Mobikwik Systems

IPO Size: Rs. 572 cr, Entirely Fresh Issue  

• For investing Rs. 150 cr in financial services business, Rs. 135 cr for payment services, Rs. 107 cr R&D, Rs. 70 cr capex for payment devices

Price band: Rs. 265-279 per share

M cap: Rs.2,168 cr, implying 26% dilution

IPO Date: Wed 11^th Dec to Fri 13^th Dec 2024, Listing: Wed 18^th Dec 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

 

2^nd Attempt at IPO

Company filed DRHP earlier in 2021 for Rs. 1,900 cr IPO (Rs. 1,500 cr fresh issue and Rs. 400 cr OFS). In the 2^nd attempt, fresh issue has been trimmed sharply and OFS eliminated.

 

FinTech Company

One Mobikwik is a 16 year old platform business, providing two-sided services to consumers and merchants. It has two business segments - Payment and Financial Services, with business model same as PayTM.

Payments business is highly competitive, commoditised, low margin, with take rate (commission for company) of 0.8% and declining. Financial services business, comprising digital credit and distribution of investment products, has ~7% take rates, wealth assets under advice of Rs. 6,700 cr and credit AUM sourced for partners at Rs. 2,500 cr, as of 30.6.24.

 

Low Treasury Yield

Company had cash and equivalents of Rs. 388 cr, as of 31.3.24, and of Rs. 362 cr as of 31.3.23. In FY24, it clocked only Rs. 15 cr in other income, implying yield of just 4%. For Q1FY25 too, other income was at Rs. 3.6 cr, when cash and equivalents were Rs. 406 cr, as of 30.6.24. This is much below the risk-free benchmark of 6.5% and surprising to see company’s own return so low, when it is in the business of distribution of financial products to customers!

 

Financials Better, But Not Good Enough

FY24 topline rose 62% YoY to Rs. 875 cr, with net profit of Rs. 14 cr, against Rs. 84 cr net loss in FY23. This profit was only on account of Rs. 15 cr other income clocked during the year.

Net profit of Rs. 10 cr in H1FY24 slipped to Rs. 5 cr in H2FY24, despite revenue rising from Rs. 381 cr to Rs. 494 cr sequentially. Also, Q1FY25 revenue surged to Rs. 342 cr, yet bottomline was negative at Rs. 6.6 cr. Thus, benefits of scale and operating leverage are yet to be proven. Break-even just prior to IPO looks unconvincing, as profitability outlook remains weak.

 

A Valuation Trap?

Prior to the IPO, One Mobikwik has had multiple down-rounds, from different investor classes:

• In Jun 2021, promoters did secondary sale to 2 Indian HNIs at Rs. 2,852 per share. Company was valued at Rs.5,100 cr by ADIA, when it picked 2.8% stake for Rs. 149 cr.  
• In Dec 2021, Rs. 100 cr primary capital raised from Times Group at Rs. 1,132 per share
• In Aug 2022, valuation dropped to Rs. 3,632 cr, when ace investor Ashish Kacholia purchased promoter shares for Rs. 15 cr, at Rs. 612 per share
• Even employees have ESOPs as high as Rs. 285, Rs. 329 and Rs. 365 per share.

It seems Mantra for Company and its Promoters is ‘raise whatever you can, at whatever price you can’.

 

Valuation Subservient, for Weak Fundamentals

After raising Rs.1,200 cr capital till date, company has a capital turnover ratio of just 1 time, which is low for technology business. Operations are yet to generate profit or become self-sustaining, hence further capital, of as much as Rs. 572 cr will be required for growth.

Listed financial product distributors (360 One, Nuvama) are ruling at about 7-8% of assets under advise. This implies Rs. 750 valuation for One Mobikwik’s financial distribution business. Since payments business profitability is much lower, the current IPO valuation prices is more than the future optimism. 

One Mobikwick’s Rs. 2,168 cr m cap may appear lucrative vis-à-vis Paytm’s Rs. 61,700 cr, given former’s topline being 1/10^th of Paytm. But benchmarking with Paytm’s valuation is itself flawed.

 

Huge Selling Overhang Expected

Bajaj Finance, American Express, Peak/ Sequoia, ADIA, Times Group, Hindustan Media, Tree Line Asia, Cisco etc. hold 43% combined post-IPO stake. Some of them have invested since 2016 and will look to exit at the earliest opportunity. Infact, Peak’s 10% post-IPO stake is even exempt from 6 month lock-in.