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