Mobikwik IPO analysis

Mobikwik IPO (initial public offering) will open for subscription on December 11, 2024, and close on December 13, 2024. We break down the payment platform's strengths, weaknesses, and growth prospects to help investors make an informed decision.

Mobikwik IPO in a nutshell

• Quality : Between FY22 and FY24, the company reported a three-year average ROE and ROCE of around -32 and -18 per cent, respectively.
  
• Growth : Between FY22 and FY24, its revenue grew by 29 per cent per annum. It turned profitable in FY24 for the first time before reporting losses again in Q1 FY25.
  
• Valuation : At the upper end of the price band, the stock is valued at a P/E and a P/B ratio of nearly 155 and 3 times, respectively.
  
• Overview: Mobikwik is a digital payment and lending platform that is expected to benefit from India's growing digital payment landscape and adoption of quick loans. Increased unsecured lending through the BNPL (Buy Now Pay Later) model and credit cards will help the company scale up its business. However, competition in this segment from other established players will be a challenge.

About Mobikwik

One MobiKwik Systems (Mobikwik) is among India's leading digital payments and financial services companies. Its core offerings include digital payments, lending services, and insurance distribution, with a particular focus on its flagship BNPL product MobiKwik ZIP. Its share of total revenue from financial services leaped from 18 per cent in FY22 to over 60 per cent in FY24. The company is also actively diversifying its product portfolio, venturing into investments, mutual funds, and gold savings products, thereby catering to a broader spectrum of financial needs.

Strengths of Mobikwik

• Strong brand: The significant growth of Mobikwik's assets under administration (AUA) to Rs 6,693 crore (as of June 30, 2024) from Rs 324 crore in FY22 reflects the brand's popularity among consumers. Nearly 90 per cent of Mobikwik ZIP users in Q1 FY25 were repeat customers.

Weaknesses of Mobikwik

• Rising costs : Operating in a highly competitive industry, the company has witnessed a significant rise in customer acquisition costs that have risen from Rs 18 in FY22 to Rs 34 in Q1 FY25. As the company is yet to report steady profitability, the escalating costs pressure its margins.

Risk report

Company and business

• Are earnings before tax of Mobikwik more than Rs 50 crore in the last 12 months?
  No. The company reported a profit before tax of Rs 14 crore in FY24 and a loss (before tax) of Rs 6.3 crore in Q1 FY25.
  
• Will Mobikwik be able to scale up its business?
  Yes. Growing consumer discretionary expenditure and underpenetration of credit services in India will help the company scale up its business.
  
• Does Mobikwik have recognisable brands with client stickiness?
  Yes. Mobikwik has a recognisable brand but it faces stiff competition from existing players like Paytm and Google Pay. Consumer churn among platforms is common in the industry.
  
• Does the company have a credible moat?
  No. The company has to compete with organised players with similar products to maintain market share.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Its promoter will hold a 25.2 per cent stake in the company.
  
• Do the top three managers have more than 15 years of combined leadership at Mobikwik?
  Yes. The company's co-founder and managing director Bipin Preet Singh has been associated with the company since 2008.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is Mobikwik free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company generate a current and three-year average return on equity of over 15 per cent and a return on capital employed of over 18 per cent?
  No. Its three-year average ROE and ROCE were nearly -32 and -18 per cent, respectively. In FY24, its ROE and ROCE were almost 9 and 5 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  No. The company has reported negative cash flows in FY22 and FY24.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company has a net cash position.
  
• Is Mobikwik free from reliance on huge working capital for day-to-day affairs?
  Yes. The company's business is not capital intensive.
  
• Can the company run its business without relying on external funding in the next three years?
  Yes. The fresh capital raised by the company should be enough to run the business for the next three years without relying on external funding.
  
• Is Mobikwik free from meaningful contingent liabilities?
  As of June 2024, the company reported contingent liabilities of only 0.4 per cent of its total equity. But the company received an income tax demand of Rs 58 crore in FY22, which if included, will increase its contingent liabilities to 36 per cent of total equity.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers an operating earnings yield of 0.9 per cent on its enterprise value.
  
• Is the stock's price-to-earnings (P/E) less than its peers' median level?
  Yes. It is valued at a P/E multiple of 155 times (based on FY24 profit). Its only listed peer Paytm is loss-making.
  
• Is the stock's price-to-book (P/B) value less than its peers' average level?
  Yes. It is valued at a P/B ratio of over 3 times compared to Paytm's 4.3 times.

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Disclaimer: This story is not a stock recommendation. Investors should do their due diligence before investing.

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