Mobikwik’s D-street attempt 2.0 has most analysts bullish

Rahul Sharma, co-founder at Equity99, expects the IPO price anywhere in the range of Rs 250-750 per share while Ginodia sees it at Rs 600-700.

After deferring its decision to hit the market for two years amidst a weak market sentiment, digital payments firm Mobikwik has put its initial public offering (IPO) plans back on the table.

The board of the Gurugram-based financial services startup filed its Draft Red Herring Prospectus (DRHP) with capital market regulator Sebi on Friday to raise Rs 700 crore.

This is the second time the firm has filed for an IPO. In July 2021, the startup had received approval to raise Rs 1900 crore, but deferred the plans owing to market uncertainty and lack lustrous performance of its startup peers in the public market.

As work begins in full throttle for the Peak XV Partners and Abu Dhabi Investment Authority-backed fintech firm, analysts are bullish over the good timing of the IPO as traders’s appetite for risk in the market runs high.

Ride the tide  

“Year 2021 was not great for fintechs. Come 2024, the sentiment is changing. There is a risk-on environment, and any IPO, for that matter, will do well. Many will ride on just the sentiment,” said Sunil Damania, Chief Investment Officer, MarketsMojo Asset Management.

A risk-on mood refers to traders’ willingness to make riskier investments, like in small-cap stocks or high-yield bonds, compared to fixed-income instruments. This environment thrives with improving corporate earnings and an optimistic economic outlook.

On the contrary, some termed Mobikwik’s timing of the IPO as compulsion rather than a choice.

“They know their weakness in terms of business outlook. The momentum is now, and they are bowing to fate. If they don’t do this now, they will have to wait for two more years. It’s a make-hay-while-the-sun-shines kind of situation…,” said another analyst on the condition of anonymity.

Mobikwik plans to use Rs 25o crore raised from fresh issue for funding growth in the financial services business, Rs 135 crore for payment services business, Rs 135 crore for investment in data, ML and AI and product and technology, and Rs 70.28 crore for payment devices business, and general corporate purposes.

“Unlike other IPOs which are aimed at debt repayment or giving exit to promoters, Mobikwik is investing the proceeds back into business. Paytm's post IPO crash has given the management a reality check. This time no current investor will sell shares. The startup is trying to tick all the right boxes,” said Sujith Salunkhe, Founder and Chief Investment Strategist at Moneydhan Investment Advisory.

Having said that, the analyst is sceptical over the long-term outlook of the fintech.

“It is yet another Paytm in the making, but without the brand or deep pockets. IPO could be blockbuster. But long term outlook is bleak due to weak balance sheet and lack of any moat,” he added.

Product roadmap, price expectation

During the 2.5-year hiatus, the founders of the company have been vocal about focusing on profitability before hitting the bourses.

The 14-year-old digital payments and financial solutions firm claims to have reported profit after tax (PAT) in the first two quarters of FY24 at Rs 3 crore and Rs 5 crore, respectively.

Overall, it closed FY23 at a net loss of Rs 83 crore, against a loss of Rs 128 crore reported in the previous fiscal. The operating revenue, however, remained almost flat at Rs 540 crore, compared to Rs 526 crore previously.

With 146.94 million registered users (as of September 30, 2023), MobiKwik generates a majority of its revenue from credit offerings, including personal loans and pay-later options, and payment gateway charges (Zaakpay). This is followed by mutual funds distribution, insurance and revenue from peer-to-peer lending product Xtra.

The startup is also experimenting with merchant loans and recently launched soundbox, Vibe. It claims to have enabled 3.81 million merchants to conduct online and offline payments.

The RedSeer report quoted in the DRHP mentions about Mobikwik’s “growth through cost-effective, technology-driven innovations evident in its array of scaled products and its ability to maintain one of the lowest employee cost-to-revenue ratios among digital financial service platforms in Fiscal 2023”.

“The operating revenue remains flat. Blame it on the fallout of other fintech stocks or its own underperformance, Mobikwik’s stock (unlisted) has lost its value by over 60 percent since 2021,” said Sandeep Ginodia, Chief Executive Officer, Altius Investech.

Shares of Mobikwik are currently trading at Rs 400-Rs 450, down from its peak of Rs 1,200-1250, in the grey market.

Manish Chowdhary, Head of Research at Stoxbox sees a good traction for the IPO, provided the issue is reasonably priced.

Rahul Sharma, co-founder at Equity99, expects the IPO price anywhere in the range of Rs 250-750 per share while Ginodia sees it at Rs 600-700.

“Mobikwik has nearly half the amount in its renewed IPO attempt due to the uncertainties in the global equities market. The markets seem to react positively as general elections can bring about expectations of political stability, tied with strong economic activity, which will help startup companies like Mobikwik. Investors will respond positively,” added Sharma.