FINDI (FND) Indian ATM and Fintech business

[Rawz]

Here's one to look at over the weekend.. ill start it off:

FINDI mission (the story): Build a new digital India, by enabling financial inclusiveness for the underbanked.

FINDI is a micro-cap listed on the ASX under ticker FND and derives 100% of its income from majority owned and controlled TSI India (in the process of rebranding to Findi). FINDI could be the only 100% pure play Indian economy linked investment via the ASX. Current market cap is under $40m. FINDI is split into two divisions. The first and dominant is the deployment and management of ATMs. FINDI manage 20,500 ATMs currently. Each ATM generates $65k+ in cumulative FCFs (free cash flow) over the ATMs life (12 years). Initial capex per ATM is $12.2k which is paid back by the 3^rd year. After the 3^rd year the ATM is a highly profitable FCF generator. The IRR (internal rate of return) is a healthy 35%.

FINDI recently won two large contracts to deliver and manage brown label ATMs for State Bank of India (SBI) which goes out to 2033+ and Central Bank of India (CBI) (not to be confused with the reserve bank of India) to 2029+. These contracts guarantee strong revenues (assuming customers keep transacting via the ATMs) for the medium term. This lowers the risk of the investment in my eyes. Other contracts with large banks in India include, Punjab National Bank, HDFC Bank and Tamilnad Mercantile Bank.

The second division is FindiPay. This division is the most exciting and currently accounts for about 10% of the business revenue. FindiPay has a tall mountain to climb for success but if it gains traction, it could be a game changer and multi-bagger opportunity for investors. Currently FindiPay is offered through 18,000 merchants as at 30 Nov 2023 and is on track to reach 25,000+ by 30 June 2024. The merchant, who is based in rural or semi-rural India (est 300m-400m end customers), offers the opportunity for the end customer to make digital payments through the FindiPay platform. These merchants often have the only reliable internet and tech-knowhow for the immediate community whom only use cash. Some merchants are being branded with FindiPay like Tiptop or Coke will put their branding on a dairy in NZ. FINDI’s ultimate goal is to have the FindiPay platform on the end customers mobile, this is a 3year+ target their 600+ Indian based staff are working towards.

FINDI have applied to the reserve bank of India for a white label ATM licence. Management have said if this is granted it will open up huge opportunities for FINDI. The licence was expected by the end of 2023 however no announcement was made advising of this. If a licence is granted FINDI will be able to put their white label ATMs in FINDI-Pay branded merchant stores creating a unique ecosystem. (The white label licence announcement should drive material share price appreciation.)

As an example, customers will be able to withdraw cash from their ATMs and then use the cash for a digital payment of bills with the merchant. This builds a circular ecosystem and bridges the divide between the cash economy and the digital economy. FINDI are also able to clip the ticket in both channels.
FindiPay services:

• Financial services- Bill payments, credit card payments
• Banking services – Domestic money transfer, Aadhaar enabled payment services (this is like a credit card but without the card), Indo-Nepal money transfers.
• Cash drop at merchant locations
• Other services including prepaid recharge, rail and air travel, premium payments.

Valuation time….

Market cap today is $37.23m.
Options (FNDOB): there are 18.2m options which expire on 17/01/2024 with an exercise price of 90 cents. Assuming all options are exercised the new market cap will be:
Current shares= 37.9m
Add converted options= 18.2m
Total shares= 56.1m
New market cap = $0.98 sp x 56.1m shares on issue = $54.9m market cap.

Valuation 1:
On 15^th of November TSI India raised $37m via a debenture that pays an 8% coupon. The debenture will compulsory convert to 16.7% equity at an intended IPO on the Bombay stock exchange. The debentures are held by Piramal Structured Credit Opportunities Fund which is 75% owned by one of Canda’s largest pension funds (guru valuers..).

The value of TSI India was set at $153m or 9x FY23 EBITDA of $16.8m which seems about right as these businesses seem to be valued at about 8x EBITDA multiples.

FINDI own 90% of TSI India or $137.7m of the $153m valuation. YES that means FINDIs holding in TSI is worth 2.5x todays market cap of $54.9m (assumes all options are exercised).
FINDI does have an option to buy back this debenture at an 18% IRR.

Valuation 2:
On 29^th November 2023 1H24 results were announced.

• Revenue $31.7m during the half up 30% on pcp.
• EBITDA $12.6m up 84% on pcp.
• NPAT of $1.1m up from $0.2m pcp

FY24 guidance:

• Revenue $67.3m
• EBITDA $23.6m
• Operating cash flows of $20.6m

Based on the FY24 guidance and established EBITDA multiple of 8-9x. We get $23.6x 8.5= $200.6m FINDI valuation or 3.6x current market cap of $54.9m.

Valuation 3
Management are targeting a listing of TSI on the Bombay stock exchange in 3+ years time with a target market cap of $500m. Assuming the Indian management team hit their targets they will have a 20% shareholder, Piramal will have 16.7% leaving FINDI with 63.3%. 63.7% of $500m = $316.5m or 5.7x current market cap.

Other valuations:

• Trading 0.82x FY24 revenue guidance of $67.3m
• Trading 2.7x FY24 operating cash flows guidance (this includes lease costs)
• Trading 2.3x FY24 ebitda guidance

Net debt as of 29 Nov 2023 was $21m comprised of $37m of cash reserves and $58.1m of gross corporate debt. Assuming all options are exercised on the 17^th of Jan it will add $16.38m cash bringing net debt down to $4.62m. It has been stated that the cash will be used for acquisitions in the ATM space and further business development.
The investment for me has little downside risk but huge upside. It’s not often you can invest in a profitable business with a strong balance sheet that is developing an exciting fintech business operating in one of the fastest growing economies in the world. The current SP is being depressed by the upcoming option exercise date. The SP did reach $1.30 before being sold down to narrow the gap to the option exercise price of $0.90. People could have been selling the head shares to fund the options exercise price. I am guessing that once the options are converted and bedded in and we get an announcement of the white label ATM licence being granted the SP could materially appreciate, possibly towards the $2 mark.

Disc i have 10% of my portfolio invested in these. DYOR

[JBmurc]

Yes, an interesting one to keep an eye ... on not much of a fin-tech investor..but number are numbers and they could well be impressive going forward for FND


"Findi is moving away from reliance on ATM Contracts with major Indian banks, to becoming a White Label ATM operator and we are also in the process of growing our business by seeking to increase the breadth of our services to become a full digital payments bank through obtaining further Indian government registrations under the new financial regulations being offered."

[silverblizzard888]

Good summary, no matter how you look at it the stock is very undervalued for its growing financials. I'm a huge fan of the stock and believe its got tremendous value to be unlocked particularly given its consider one of the big players in the ATM industry in India. India's going to be a super wealth nation going forward so its a good way to gain exposure to its growing economy. When their white label license comes through it should help unlock further potential to explore an underserved population that doesn't have immediate access to ATMs, currently they are handicapped by only being able to operate ATMs within their ATM contracts. They are also future proofing themselves with Findipay.

The stock price is held back by the large amount of options that will expire soon. The white label license being issued or an acquisition announcement should get the share price moving. Theres also potentially a dividend of 30% of NPAT if they decide they have the cash to spare. A good sign they have reached a point where they can begin to grow their profits and share the spoils with their shareholders. Its just a matter of holding and waiting while they do their thing.

[DarkHorse]

Nice analysis Rawz. I have modest holding. The November $37m sophisticated fund investment both underscores their potential and significantly derisked them - debt and potential dilution kept me on the sideline prior to that.

Of course in most countries ATMs are dying business, but the Indian market is very different. This video presentation by the Chairman is worth watching https://www.youtube.com/watch?v=t0uEgqIf6jw (if the link doesn't work, google "youtube webinar sharecafe fnd")

[Rawz]

Nice analysis Rawz. I have modest holding. The November $37m sophisticated fund investment both underscores their potential and significantly derisked them - debt and potential dilution kept me on the sideline prior to that.

Of course in most countries ATMs are dying business, but the Indian market is very different. This video presentation by the Chairman is worth watching https://www.youtube.com/watch?v=t0uEgqIf6jw (if the link doesn't work, google "youtube webinar sharecafe fnd")

Thats is a good presentation. Nicholas Smedley talks well. He seemed reasonably confident in winning more ATM contracts. In the presentation he mentions that they are quoting for blocks of 2000-3000 ATMs. Historically (as per CBI ATM contract) 2,550 ATMs generated additional revenue of $27m p.a. and $12m EBITDA p.a. So its meaningful growth on FY24 guidance of $67m revenue and $23m EBITDA if they win even one of the tenders. And again if the white label licence is granted by the Indian reserve bank then this year could be very exciting for us shareholders.

Its worth noting that the 3 directors are also confident shareholders. They put their money where their mouth is by buying shares at every opportunity- unlike a lot of directors that often hold zero shares even though they have sat on the board for multiple years.. directors buying with money out of their pockets is a big vote of confidence.

18/10/2022
- $2.8m cap raise.
- directors subscribed for $550,000

06/03/2023
- $2.3m cap raise
- directors subscribed for $200,000

19/12/2023
- 1,087,000 options exercised by the directors
- $978,300 consideration

[Rawz]

BTW- i dont normally like talking about EBITDA.. prefer NPAT.. but EBITDA is one to watch with FND. From what i can tell the ATMs are being depreciated over max 6 years but have a useful life of around 12 years. Ive watched a couple of youtube videos on ATM businesses and the upkeep is very minimal. Its basically 99% cost upfront and then once you depreciate it everything drops to the bottom line with what seems to be no more capex required.

[Rawz]

Last day to exercise the options. will be interesting to see the final count.

[Muse]

am sure cash, and thus atms, play a different role in india than in the rest of the world.
worth recalling ATMs going the way of the dodo at a rapid clip here and in australia
https://www.auspaynet.com.au/resourc...ice-statistics

[Rawz]

am sure cash, and thus atms, play a different role in india than in the rest of the world.
worth recalling ATMs going the way of the dodo at a rapid clip here and in australia
https://www.auspaynet.com.au/resourc...ice-statistics

Yes its certainly a sunset industry in the west. FND take great effort to ensure every investor presentation talks to how different the Indian economy is (especially in the rural- semi rural) with cash use still growing double digits. Its a cultural thing as well to use cash from what i can gather.

An issue to keep an eye on but possibly nothing to worry about for the next 10 years (i believe Smedley said that in one of his many interviews)

[Sideshow Bob]

Agree with Rawz, have to be aware of the wider global macro trends for sure, but that Indian market is very different and even if some sectors/demographic groups do change there is a large portion of the population that will be reliant on cash for the near future.

Very modestly valued currently with plenty of upside. Only 40.7m shares on issue currently (which will change with the options), so today with a market cap of about $40m AUD.