Robin Raina's profitable fintech firm Ebixcash is gearing up to go public; what lies ahead for the company?

The stock prices of US-head - quartered, NASDAQ-listed Ebix Inc., a global player in software solutions for insurance, healthcare and financial services, have doubled to $24 a share in the past two months. One probable reason is that its step-down subsidiary, EbixCash Limited, is readying to debut in the Indian stock market next month.

Robin Raina, who achieved fame in the US by reviving struggling Ebix Inc. two decades ago, had actually borrowed money from the US parent company to enter the Indian market. Raina, the Chairman, President and CEO of Ebix Inc., used the money to acquire over two dozen companies in payments, travel, forex and remittances to create an ‘airport’ of financial transactions in India.

The 47-year-old Ebix Inc.’s investors, though, were uneasy. First, the credit line to the fledgeling Indian entity created uncertainty about repayment. Second, the Indian financial services industry is crowded with start-ups such as Paytm, non-banking finance companies (NBFCs) such as Bajaj Finance, and big banks owned by public, private and foreign giants. In India, many fintech players were struggling to show scaleable, sustainable and profitable growth without cashbacks and discounts. The sudden surge in the Ebix Inc. stock price could actually be a sign of what to expect from the listing of the Indian subsidiary’s mega Rs 6,000-crore IPO.

In fact, what Raina achieved at Ebix Inc., including acquisitions, turnarounds, and a business model based on building an airport-like infrastructure globally, served as inspiration for his strategy in India. Raina had set up the India business in the 2000s as a development centre, while leading Ebix Inc. He ensured that it was India that became the software development leader, and not the high-cost US or other developed countries, and aggressively built a one-stop shop for consumers (B2C) and companies (B2B) to do payments, remittances, travel, insurance, e-learning, and healthcare over the past six years. And now, his newly perfected business model, built mostly on the back of acquisitions, is readying to play a meaningful role in the cut-throat financial services industry.

The flamboyant Raina, who is currently engaging with investors across India and globally, is pitching the Noida-headquartered EbixCash’s profitable growth narrative (see interview). There are some who often compare the company with Paytm and other fintech players. “Our story is all about platforms-as-a-service. This gives us stable recurring revenues,” says Raina, without getting into any specifics about rivals. “Ours is a one-stop shop converging financial technologies, travel, and payments, forex and remittances.”

There are broadly three business segments: fintech, payment solutions (inward remittances, forex and outward remittances), and travel. The fintech segment, which is a platform-as-a-service, accounts for 53 per cent of the company’s revenues, as of March 31, 2023. Travel, riding on EbixCash platform-as-a-service, brings in 19 per cent, followed by payments and others. Under fintech, there are SaaS-based technology systems for financial institutions in the areas of lending, wealth management, insurance, ticketing, travel technology, etc. These licensed products are sold on a usage basis. “We have India’s top banks and NBFCs as our clients,” says Raina. Outside India, the company has clients in 60 countries. But there is also competition in each of the businesses. “Be it payments, forex, remittances, travel, etc., there are players, both bank and non-bank, which could give it competition,” says a consultant, while adding that there is also disruption from new payment infrastructure rails like UPI and blockchain.

Like they say, the proof of the pudding is in the eating. Raina boasts of customers using his product in their day-to-day lives. For instance, the company offers smart back-end technology solutions to buses across 18 Indian states. “There are 150,000 buses that have deployed EbixCash back-end technology, which helps in online ticketing, monitoring, and data analysis,” he says. There appears to be no business model like EbixCash in the listed space. But there is definitely competition segment-wise—banks and NBFCs in the remittances and payments space; Canadian billionaire Prem Watsa’s Thomas Cook in the forex market; MakeMyTrip in the tour and travel space; and Pinelabs, Sodexo, etc. in the prepaid cards segment.

According to market experts, EbixCash’s current peer group includes publicly traded fintechs such as Paytm and Policybazaar. Paytm’s valuation is around six times its revenues, whereas Policybazaar enjoys a valuation of around 10 times its revenues (see ‘Entering the Arena ’). However, unlike its competitors, EbixCash is a profitable venture. Merchant banking sources claim that the correct valuation metrics for EbixCash should be a multiple of Ebitda (earnings before interest, tax, depreciation, and amortisation) and not revenue. In fact, a bulk of the revenue in the peer group in the past was also due to cashbacks and discounts. In 2022-23, EbixCash generated cash flows of Rs 810 crore and PAT of Rs 748 crore.

“The real logic of the market should always be profitability,” says a banker. The fact that EbixCash purchased forex trader Centrum Direct for 35 times Ebitda provides some hints as to the potential pricing of the IPO. This is the kind of price Raina paid while acquiring companies in India. The book runners and lead managers for the issue are ICICI Securities, SBI Caps, Motilal Oswal, Equirus Capital, and YES Securities.

There is actually no selling investor in the IPO. Ebix Singapore Pte, a subsidiary of Ebix Inc., holds 100 per cent stake in the company. The Indian entity or step-down subsidiary is expanding the equity or making fresh issuance, which will result in a likely dilution of Ebix Singapore’s equity in the range of 18-22 per cent. In other fintech IPOs, private equity and venture capital firms sold their stakes, which meant money from the IPO went to selling shareholders and did not come into the newly-listed companies. Then, the Ebix promoter entity will still hold a majority chunk (almost 80 per cent) post-IPO, which is not the case with many founders in fintech start-ups.

Going forward, Raina wants to continue with his acquisition strategy to fill the business gaps as evident in the DRHP document. The company plans to use some of the IPO money to fund strategic acquisitions. Raina has always believed in buying local firms in order to get regulatory licences, gain their contacts, and network with regulators and consumers. The acquisition target areas could be to gain expertise in SaaS and cloud-based technologies in insurance, finance, healthcare, e-learning, etc. The company is also looking into acquisitions that enhance its offerings in the areas of blockchain and international remittances.

Apart from funding acquisitions, it needs working capital for its foreign exchange and travel businesses. For instance, it has forex counters at Dubai Airport, the busiest airport in terms of the number of foreign travellers in the world. Running this requires working capital. The company already has forex operations in more than two dozen airports, including Delhi, Mumbai, Hyderabad, Chennai and Kolkata. Similarly, the travel business, especially aviation ticketing, also needs working capital, which will help in earning additional incentives from the airline companies.

Given the current state of the stock market, the timing of the offering seems opportune. Interest rates have almost peaked, and inflation has also moderated. The BSE Sensex has already jumped 10 per cent in the past two months. The recent IPOs of Mankind Pharma, Avalon Technologies, Global Surfaces, Divgi, and Sah Polymers have given handsome returns. Like Raina says, he would like to leave something on the table for investors; there is a carrot dangling for the investor community if they believe his words. If the IPO goes well, it could bolster the finances of Ebix Inc. And Raina will have the best of both worlds.