An unflattering FY21 is a risk for MobiKwik’s tryst with markets

MobiKwik co-founder Upasana Taku (Photo: Mint)
MobiKwik co-founder Upasana Taku (Photo: Mint)

Summary

MobiKwik’s big challenge is to grow its base by keeping wallets relevant amid a bevy of digital payment options

One MobiKwik Systems Ltd, all set for raising money through an initial public offering (IPO), has a tall task ahead of it. The fintech firm has to convince investors that FY21 was an aberration and that its wallet will grow by leaps despite the intense competition.

Unlike other e-commerce businesses in India, the fintech space is highly fragmented with many payment and credit options that overlap with each other. “The biggest task for wallet companies is to explain the long-term relevance post-UPI (unified payments interface). That goes for every wallet company, be it Paytm or MobiKwik," said a financial services analyst, requesting anonymity.

This partly explains why MobiKwik saw its performance deteriorate in FY21. Its draft red-herring prospectus reveals that its gross merchandise value (GMV) fell 30% last fiscal year and its net loss widened. Besides, the company couldn’t add as many new users as it did in FY20.

A thinning wallet
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A thinning wallet

Of course, none of this has impacted its valuation. When the company raised $20 million from Abu Dhabi Investment Authority (ADIA) last month, the effective per-share price was more than double, compared to a small fund-raise pre-covid in February 2020.

ADIA bought shares at an effective price of 896 per share, while the February 2020 share sale was for 457.

The frenzy for internet stocks among investors may well ensure that the uptrend continues.

But MobiKwik’s big challenge is to increase the bang for the buck from each wallet user and also grow the base by keeping wallets relevant amid a wide range of digital payment and credit options.

The pandemic may have boosted digital payments, but it hasn’t helped wallet companies. Moreover, global majors such as Alphabet Inc.’s Google Pay and Flipkart’s PhonePe have cornered a huge share of payments riding on the unified payments interface.

Meanwhile, MobiKwik has forayed into credit, also called buy-now-pay-later (BNPL)—a silver lining for the company. “BNPL is a fast-growing segment and the most promising one right now. It is also picking up at the right time," said another analyst also requesting anonymity.

Going by MobiKwik’s FY21 performance, it is clear that the company needs funds to grow. The 1,500 crore that it seeks to raise from the IPO will help, and also give it an opportunity to unlock value for existing investors. As pointed out earlier, the growing frenzy for new-age internet firms among Indian investors may give a push to MobiKwik. But whether the valuation of about 5,100 crore based on the latest fund-raising in June would swell remains to be seen.

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