MobiKwik DRHP: Tight regulations, sustained profitability, expanding financial services among factors to watch out for

Mobikwik

Bajaj Finance-backed fintech MobiKwik is taking a second shot at entering the capital markets, encouraged by the market buoyancy and the slew of companies floating initial public offerings (IPOs) in recent months.

Payment platform One MobiKwik Systems Ltd has slashed its issue size to Rs 700 crore from Rs 1,900 crore and refiled the draft papers with the Securities and Exchange Board of India (SEBI) to raise funds from the public.

Earlier in July 2021, the company had filed the draft red herring prospectus with the market regulator for a Rs 1,900-crore IPO.

Founded in 2009 by Bipin Preet Singh and Upasana Taku, MobiKwik has around 14.6 crore registered users. MobiKwik generates the majority of its revenue from credit offerings, including personal loans pay-later options, and payment gateway charges (Zaakpay). This is followed by mutual fund distribution and revenue from the peer-to-peer lending product Xtra.

The start-up is also experimenting with merchant loans and recently launched a soundbox, Vibe. It claims to have enabled 8.1 crore merchants to conduct online and offline payments.

From the offer to its financial health, from its efforts to get a payment aggregator licence to some prominent pending litigation, here are the top five things to watch out for in MobiKwik’s DRHP:

Offer details

MobiKwik’s IPO will be a pure fresh issue of shares, and there is no offer-for-sale (OFS) component.

The company’s lead investors include Bajaj Finance, which has around 13.44 percent of the shareholding, Peak XV Partners with 13.09 percent of the shareholding, and Net1 Applied Technologies with 10.47 percent.

Since its inception, the company has raised nearly $269 million in funding from various investors, including Peak XV and Bajaj Finance.

As per the firm’s DRHP, the entire issue will be a fresh issue of shares without any OFS. However, the company, with advice from lead managers, may issue securities worth Rs 140 crore through pre-IPO placement, potentially reducing the fresh issue size, as per the DRHP.

The pre-IPO placement involves the sale of unregistered shares in a company before they're listed on a stock exchange for the first time.

Utilising the IPO funds

MobiKwik currently has four verticals under which it offers various services like payment gateway services, retail loans, UPI payments, and more. The firm’s subsidiary, Zaak ePayment Services Private Limited, or Zaakpay, operates under the payment gateway segment and is engaged in the business of providing payment gateway services, among other things.

MobiKwik Investment Adviser Private Limited is currently engaged in the business of providing investment advisory, financial planning, and consultancy on securities, investments, etc. The firm has yet to start operations under MobiKwik Credit Private Limited and MobiKwik Finance Private Limited.

According to the DRHP, of the IPO proceeds, around Rs 250 crore will be used to fund the growth of its financial services business, around Rs 135 crore for the payment services business, and around Rs 135 crore for investments in data, ML and AI, and products and technology. Around Rs 70 crore will go towards capital expenditure for the payment device business.

MobiKwik’s financial health

For the financial year 2022–23 (FY23), MobiKwik reported a net loss of Rs 84 crore with an operating revenue of Rs 540 crore. Expenses amounted to Rs 617 crore, with an operating loss of Rs 56 crore.

However, as per the firm’s DRHP, for the first half of 2024, MobiKwik registered a net profit of Rs 9.4 crore and an operating revenue of Rs 381 crore, with expenses coming down to Rs 366 crore. The firm also reported an operating profit of Rs 20 crore.

“As we continue to expand our portfolio of products, we have augmented our platform into an increasingly compelling offering for our consumers while simultaneously enhancing profitability and value. As a result, our company has achieved a profit amounting to Rs 94.78 million (or Rs 9.4 crore) for the six months ended September 30, 2023,” the firm said in its DRHP.

Board members and their remuneration

The listed entity, MobiKwik, has appointed its co-founder, Bipin Preet Singh, as its Managing Director and CEO. Upasana Taku continues to be the Chief Financial Officer (CFO) and will be the Executive Director and Chairperson.

The company has appointed Punita Kumar Sinha, Sayali Karanjkar, Navdeep Singh Suri, and Raghu Ram Hiremagalur Venkatesh as independent directors.

Sinha has been an independent director with companies like Infosys Limited and JSW Steel Limited; Karanjkar was the co-founder & CBO of PaySense Services India Private Limited, which was later acquired by Naspers-backed PayU in 2020; Suri has served as India’s Ambassador to the Arab Republic of Egypt and the UAE, Consul General in Johannesburg, and High Commissioner to Australia. Venkatesh is currently the Chief Technology Officer (CTO) and Vice President of Engineering at LinkedIn Corporation.

Vineet Bansal, who is the independent director of Handy Online Solutions Private Limited, will be a Non-Executive, Non-Independent, Nominee Director of MobiKwik.

As per the DRHP, MobiKwik’s independent directors are entitled to receive a remuneration of Rs 17 lakh per annum in addition to sitting fees of Rs 1 lakh per meeting of the Board and Rs 1 lakh per meeting of statutory committees of the Board.

Independent directors are also entitled to reimbursements for travel, hotels, and other incidental expenses incurred by them to attend such meetings.

Non-executive, non-independent directors are entitled to receive a sitting fee of Rs 1 lakh per meeting for attending meetings of our Board.

As of the date of the DRHP, for FY23, the company has paid both Upasana Taku and Bipin Preet Singh remuneration of Rs 2.4 crore each.

Zaakpay licence, pending approvals

As a financial technology platform, MobiKwik’s business faces the inherent risk of a changing regulatory environment.

The platform’s application for a payments aggregator licence was rejected in 2021. Upon reapplication, it received the in-principal nod but is yet to receive the final approval.

“We may or may not receive the final approval…Alternatively, post receipt of the final approval from RBI, in case we are unable to scale our payment aggregator business through Zaakpay, it may lead to a loss of revenue and a loss of reputation,” it said.

MobiKwik mentions the stiff competition it faces from its peers, including Paytm and PhonePe, which have been able to surge ahead in terms of volumes, value, and product offerings over the past few years.

“Greater financial resources and product development capabilities may allow our competitors to respond more quickly to new or emerging technologies and changes in consumer and merchant preferences that may render our platform less attractive or obsolete,” the start-up said.

Also, MobiKwik has submitted to the RBI documents related to the mess-up in managing records and compliances about allotments made to certain non-resident shareholders, including Sequoia Capital India Investments, Tree Line Asia Master Fund, Cisco Systems, and GMO Global Payment Fund.

The application, made in December 2023, is currently pending before the RBI.

The DLG impact: Contract re-negotiation risk

Like many others, MobiKwik has been looking to double down on lending. Its revenue from financial services stood at Rs 285.02 crore in FY23, forming 52.83 percent of the overall revenue.

The platform, which acts as a loan service provider (LSP), has non-exclusive short-term agreements (which can be terminated by the partner by providing a written notice) with lending institutions like Hero Fincorp, Northern Arc Capital, SMFG India Credit (formerly Fullerton India), MyShubhLife, and Transactree Technologies.

As per the DHRP, these contracts are currently under re-negotiation since the announcement of the Digital Lending Guidelines (DLG).

In case the renegotiation fails or if the RBI interprets the prior arrangements to be non-compliant with the new guidelines, then the RBI can levy penalties or take actions against the lending partners, which may affect MobiKwik’s operations.

Pending litigations

There is one criminal case and 15 tax proceedings going on against the company and its subsidiaries that involve over Rs 250 crore.

There are also four criminal proceedings and two tax proceedings going on against the directors and promoters.

The company is also involved in 39 consumer-related proceedings that are currently pending before various forums, such as the district consumer disputes redressal forum and consumer courts.