Can MobiKwik's IPO Live Up to the Hype in a Competitive Market?

MobiKwik, a mobile wallet and financial services platform, has been planning an IPO since 2021. However, the fundraising plan was postponed for one reason or another. Now, MobiKwik has refiled a Draft Red Herring Prospectus (DRHP) for a fresh issue of ₹700 crore.

Interestingly, this new DRHP portrayed a 63% size reduction from the previous ₹1900 crore issue. So, what does this mean for the company? What would be new, and what should you expect from this forthcoming IPO?

This article will answer all your queries regarding financials, future prospects, and more. Like a cherry on top of a cake, we will also discuss what’s the difference between the previous (non-accomplished IPO issue and the present one.

Will this help you decide whether to apply or not?

• IPO Details
• MobiKwik’s Success Story
• Why was the IPO delayed?
• Fintech Sector Overview
• Financials
• Comparison between 2021 & 2024 IPO Issues
• The Bottom Line

Breaking Down the IPO Allocation and Funding Plans

If someone were to design a graph for MobiKwik’s turn of events relating to its IPO, it would be a straight dip after a smooth ride. ⬇️

• MobiKwik filed a DRHP to SEBI to raise funds via an initial public offering in July 2021.
• SEBI accepted the request and gave its approval to do so in October 2021.
• Then, the plans to raise funds via an IPO took a backseat as certain regulatory concerns surfaced.
• Now, finally, MobiKwik has come up with a fresh issue of ₹700 crore to raise funds via public means in January 2024 by refiling a DRHP.

In short, this would be MobiKwik's second attempt at an IPO, aiming to raise funds through a fresh issue of equity shares. Here’s hoping this time, MobiKwik will be able to successfully ring the bell to begin its journey as a public entity.  

Before we get into the tell-tale of why MobiKwik took this big of a gap in issuing an IPO, let’s take a quick breakdown of the IPO’s key details:

a. IPO Share Allocation:

This section dives into how the company plans to distribute shares in its upcoming IPO and how it intends to utilise the funds raised.

1. Institutional Domination: Roughly 75% of the shares offered will be allocated to Qualified Institutional Buyers (QIBs), which are large investors like banks, insurance companies, and mutual funds.

2. Limited Retail Participation: Retail investors, which represent individual investors like you and me, will have access to a smaller portion, only around 10% of the shares.

3. Non-Institutional Bridge: The remaining 15% will be allocated to non-institutional investors, who could include high-net-worth individuals and corporate entities.

b. Marquee Investors on Board:

The company already boasts some impressive names as existing investors. These include:

• Bajaj Finance - 13.44%
• Abu Dhabi Investment Authority (ADIA) - 2.8%
• American Express - 1.76%

These investors are bound to attract investments as they help provide credibility to the firm.

c. Pre-IPO Placement:

The company might choose to raise a portion of the funds, around ₹140 crore, before the IPO by issuing shares to select investors. This is called a pre-IPO placement.
If they do this, the amount of fresh shares offered in the IPO itself will be reduced accordingly. Dates for the pre-IPO placement and other details haven't been confirmed.

d. Promoter Shareholding:

The pre-issue shareholding of the promoter and promoter group in MobiKwik is as follows:

What’s to note here is that none of the members of the promoter group hold any equity shares in the company as of now. This means, none of the promoter group members would directly benefit from the initial public offering (IPO) through selling their own shares.

e. Utilising the IPO Proceeds:

The funds raised through the fresh issue of shares will be strategically used for various purposes, including:

• Fueling Growth: The company plans to invest in expanding its financial services and payment services businesses.
• Product and Tech Innovation: Resources will be directed towards developing and improving various financial products and the underlying technology.
• Infrastructure Upgrade: The company might use the funds for capital expenditure, potentially upgrading its infrastructure.
• General Corporate Needs: A portion of the proceeds might be allocated for the company's general operational expenses.

The date for enlistment and other details hasn’t been clarified as of yet.

The Story of MobiKwik's Establishment

The soon-to-be public money wallet company, MobiKwik, was founded by husband and wife Bipin Preet Singh and Upasana Taku in 2009. With a mission to "build a world-class payment and credit product for Bharat”, MobiKwik soon grabbed the position of a unicorn and made a prominent name for itself in the fintech sector.

In 2009, Bipin Preet Singh felt stifled by his corporate job. Craving something new and revolutionary in terms of the way people pay. That's when the spark for the idea behind MobiKwik ignited.

Bipin and his Stanford graduate wife, Upasana, faced numerous hurdles. Convincing banks to partner with a fledgling startup, finding the right tech talent, and securing funding felt like they were trying to climb Mount Everest in flip-flops. However, Bipin and Upasana were not deterred, and their efforts finally paid off in 2012.

MobiKwik transformed from a mobile recharge platform into a full-fledged digital wallet. Suddenly, millions of Indians could store money securely on their phones, making payments a breeze. The company catered to everyone, even those in remote areas with limited internet access, through their MobiKwik Lite app.

Then came the game-changer—demonetisation in 2016. Cash became scarce, so India turned to digital payments. MobiKwik witnessed a phenomenal surge, processing transactions at a dizzying pace. They rode this wave perfectly, becoming a household name synonymous with digital wallets.

But MobiKwik didn't stop there. It evolved into a comprehensive fintech platform, offering loans, insurance, and investment options. It became a one-stop shop for all things financial, empowering users to manage their money with ease. Today, MobiKwik boasts over 140 million users and 4.1 million partners, proving its place in the financial sector.

Why was MobiKwik Unable to Go Public in 2019?

This must be one of the first questions that pop into your mind when you see this article. It was one of the first ones of mine. After all, the company had even received the green light from RBI and SEBI in 2019.

In 2019, the Reserve Bank of India identified some areas lacking in terms of regulations for Prepaid Payment Instruments (PPIs). These regulations, established in 2017, found that MobiKwik was not appropriately verifying customer identity documents before allowing them to load funds.

Along with this they were doing so with minimal details and by not appropriately completing the Know Your Customer (KYC) process before enabling money transfers. This regulatory issue was heavy on MobiKwik as it had to acknowledge RBI's findings and pay the ₹1.5 million penalty (₹0.15 crore) imposed.

That’s not all! During regular inspections, RBI also identified areas where the money wallet firm could improve its operations. These included:

• Reviewing software installed on customer devices more thoroughly.
• Strengthening controls to prevent data leaks from employee mobile devices.
• Enhancing the security of customer databases.
• Improving the fraud risk management practices.
• Conducting more frequent internal audits of the information security systems.
• Addressing how users can access accounts from multiple devices simultaneously.

They responded to RBI, clarifying the issues and outlining steps to address them. This includes improvements to server-client setup, security solutions, and integration of a system for managing security events.

Fintech Sector Overview & Peer Comparison

With a market size of ₹9.2 lakh crore, the fintech sector is one of the fastest-growing industries in India. This sector is a dynamic and rapidly growing space that merges technology with financial services. It's revolutionising the way we manage money, offering greater convenience, accessibility, and innovation.

The global fintech market is expected to grow in the coming years, fueled by rising smartphone penetration and increasing internet usage.

Emerging technologies like Artificial Intelligence (AI), Blockchain, and Big Data are crucial in shaping the future of fintech.

Regulatory frameworks are constantly adapting to address the evolving nature of fintech and ensure consumer protection. India is slowly transforming into a fintech hub with well-known names.

MobiKwik and Paytm are strong competitors, offering similar services like digital wallets, bill payments, lending options, & investments. MobiKwik can likely learn from Paytm's recent IPO experience. Do you remember how Paytm’s IPO turned out? If so, then let us know in the comments!

The steadily increasing number of digital transactions in India is further boosting this scenario to the best of its ability.

Now, it’s time to check out…

MobiKwik’s Financials

As per the Draft Red Herring Prospectus (DRFP) submitted by MobiKwik to SEBI, the financial data of the company stands as thus:

 
As per the infographic above, you can see that the total income of the company slightly increased from ₹543.219 crore to ₹561.11 crore in one year. On the other hand, the expenditure dived down 6.31% approximately.

And the Profit After Tax (PAT) is negative with a loss of ₹83.81 crore for FY23. Although this amount decreased from the previous year by around 35%, a negative financial situation is still a major concern for a company. This could make the investors hesitant to invest in it.

Seeing that the company has considerably reduced its losses and is still doing so is an optimistic prospect. But a company delivering hundreds of crores of loss over the span of 5 years is still something to double-check & think about.

What are the Differences Between the 2024 and the 2019 MobiKwik’s IPO?

To accurately compare whether investing in this IPO will be a fruitful decision or not, it’s important to check out a few things:

a. Lower IPO Valuation: Negative profits led to a lower valuation for MobiKwik's IPO than they might have hoped for. This means they might raise less capital than initially planned. Hence, a 63% reduction in issue size took place.

b. Increased Scrutiny: Investors will likely scrutinise MobiKwik's financials very closely, demanding a clear understanding of their future profitability roadmap.

c. Focus on User Growth: MobiKwik might prioritise strategies to increase its user base and market share to demonstrate future revenue potential, even if profits remain elusive in the short term.

MobiKwik has secured nearly $180 million (₹1,494 crore) in funding over time from a mix of established investors like Peak XV Partners, Orios Venture Partners, Cisco Investments, Abu Dhabi Investment Authority, Bajaj Finserv, and American Express Ventures.

They achieved unicorn status (valuation exceeding $1 billion) in October 2021 when some employees cashed in their stock options (ESOPs).

In short, the key difference between MobiKwik's 2021 and 2024 filings lies in their targeted valuation and pricing strategy. The initial, higher 2021 valuation reflected a market brimming with investor capital and excitement for tech startups. The recent reduction in IPO size to ₹700 crore with a focus on fresh issuance suggests a strategic adjustment to a more cautious market environment.

The Bottom Line

MobiKwik's approach seems more grounded compared to their 2021 attempt at an IPO. Back then, a bullish sentiment surrounded tech company IPOs. However, the experiences of Paytm, Zomato, Nykaa, and others serve as cautionary tales for companies seeking a public listing.

MobiKwik's upcoming IPO presents a classic case of a high-growth company with yet-to-be-realized profitability. While the lack of profits raises a caution flag, their progress towards a positive bottom line, the booming Fintech sector in India, and a well-defined path to profitability can be compelling factors for investors with a long-term outlook.

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.