Infibeam Avenues is India’s first listed Fintech company and it’s leading product is CCAvenue payments gateway. It is amongst the top 5 payment aggregators in India and runs a profitable operation. It’s business is divided into two major parts – Payments and Platforms.
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In the platform part of business, it provides E-commerce marketplace solution as well as other solutions. Notable deployment and crowning glory of this business is the Government of India’s E Marketplace more commonly known as GEM platform (https://gem.gov.in/) which is growing at 100% YoY as of Aug 22. Besides this Jio-Mart also uses their platform. Besides the marketplace solution, they have a few other platforms addressing bill payments (based on BBPS), Hotel booking (ResAvenue) etc.
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On the payment side, Infibeam is the pioneer in the industry with a lot of industry first in India. Over last few years it has lost in market share to better funded fintech(s), but since 2021 it has started pulling itself back. It has stayed out by and large from the gig-economy and focused on payment segments where credit card / debit card is dominant. Its net take rate (NTR) had plummeted as it started getting aggressive and more competitive. However, over last 2-3 quarters, the NTR has started showing improvement as some of the more lucrative sectors including travel and hospitality return to full working post covid and other reasons.
Both GEM and payment gateway business are clocking heavy duty growth on GMV basis. Margins have not kept pace as gross margins in payment gateway business have halved in FY22 compared to FY21 – thereby cancelling out the margin addition from top line growth. FY23 is likely to see some improvement in the NTR and thereby margins too.
While the business is 90%+ India based, they do have an international presence and want to roll out more aggressively internationally. Please refer to their Annual Report of FY22 to understand the business in depth. They have done a commendable job to try and explain the business and its components in there. There are simply too many components to try and explain here in this note.
Besides the existing business, 2 new areas catch attention :
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TapPay – is a soft POS solution, converting any mobile with NFC into a potential POS machine. It acquired this technology from an acquisition (UVIK) and is in process of rolling out. This solution has the promise of addressing the acquiring side of payment business in a cost efficient manner. Company expects a large part of volume growth to come from this in the next couple of years. This solution, if it succeeds in India, can be taken to other Asian countries rapidly.
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TrustAvenue (https://trustavenue.com/) – is an intermediation play between bank’s/NBFC’s and loan-seekers (typically targeted to MSME’s). This business is likely to leverage (a) Infibeam’s existing relationships with large Indian Private sector banks for the supply side and (b) it’s merchant base on the payments gateway business and most likely the supplier base on GEM platform also as the demand side. They are in the process of doing integration work with banks.
Overall Infibeam is operating in high growth businesses. The challenge is to keep margins growing at similar rate / higher rate than growth in GMV and competing with VC funded fintech’s which have the capability of disrupting the unit economics and even working at -ve margins. Besides other risks, one key risk is on GEM business. Their contract ends somewhere in mid-2023. Whether it gets renewed (and for how long and at what economics) or will go on tender mode needs to be seen. This is perhaps the biggest risk for Infibeam today and an overhang. There have been mentions of corporate governance issues in the past and that also is an overhang perhaps.
Key to valuation besides addressing the risks above, is how they are able to improve on the margin profile and create some semblance of a moat (entry barrier to payments business is very low). They are in process of preferential issue of capital to fund international growth and investments/acquisitions. Management has started providing guidance at annual level (Q4 investor presentation and Annual Report).
Overall, a high risk, but interesting proposition in a very high growth, highly competitive, dynamic and regulatory heavy industry.
Disc – Invested.
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