The stock of Fino Payments Bank (Fino) made a weak debut in the equity markets today at a 5 per cent discount from its offer price of ₹577 apiece. The stock has further dropped 3 per cent intra-day to ₹531 at the time of writing this.

Other fintech players made their debut this year with stellar gains despite launching their issues at exorbitant valuations. But the IPO of Fino saw weak response from investors.

The issue was subscribed by just 2.03 times, with retail category being subscribed by 5.92 times. The portion reserved for Qualified Institutional Buyers and Non-Institutional Investors was subscribed by 1.65 and 0.21 times, respectively.

Also read: Fino Payments Bank makes a tepid debut

The offer worth ₹1,200 crore comprised a fresh issue of ₹300 crore and the rest an offer for sale. Post issue the holding company (Fino Paytech) retained 75 per cent stake. Principal shareholders of the holding company include marquee names such as ICICI Bank, Intel Capital Corporation, International Finance Corporation, Blackstone GPV Capital Partners (Mauritius) VI-B FDI and Bharat Petroleum Corporation.

At the current market price, Fino is valued at 6.2 to 6.4 times its FY21 revenue, which seems reasonable given its growth prospects and operating leverage. While Fino’s business touch points and deposits mobilised are much lower compared to the top three payments banks – PayTM Payments Bank, India Posts Payments Bank, Airtel Payments Bank - its transaction volumes and value, fare better than the rest (barring PayTM Payments). Given these factors, investors with an appetite for risk, can buy the stock at current levels for the long-term.

Growth prospects

Despite the regulatory curbs on lending activities for payments banks, and heavy reliance on transaction-based fees and commissions for revenue, Fino’s unique business model has helped drive profitability for the company, juxtaposed to several other payment banks that have either exited the business or are at the brink of extinction.

With an asset light and partnership-based approach to scalability, the company has seen operating leverage kick in, starting FY21. That said, investors also need to take note that company reached profitability only in FY21 and has a limited history of profits.

However, its reach in unbanked segments of the country, and the current under-penetration leaves large headroom for growth. Besides, its technology-driven business model, about 15 years of experience in the payments technology-related businesses (however commenced operations as payments bank from 2017 onwards), and elimination of credit risks (even while cross-selling loans and other products), are other key positives of its business model.

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