Analyzing Mobikwik IPO Hype Amidst Business Challenges

The closing day for Mobikwik was Friday for the IPO book building for this Gurugram-based fintech startup. The demand was almost 120 times over the offer. The reserves for retail investors received 134 times subscriptions, non-institutionals offered 108 times, and institutions were getting bids at 119.5 times, the BSE said. The company is going to issue 11.8 million shares and receive bids for 1.4 billion.

The demand for Mobikwik's stock is significant because, despite not being a leader in its field of digital payment, the interest in its stock is considerable.

Attractive pricing 

The price has been made very competitive, being in the range of Rs 265-279. According to a trader who actively participates in the unlisted equities market, Mobikwik shares were trading at around Rs 825 in the grey market at the end of September, enticing a number of investors with the possibility of a listing gain.

“The stock has been very sweetly priced; the valuation seek has been at a massive discount,” said a fintech founder who operates in the digital payments space. “Typically, companies with a market capitalisation of around Rs 2,000 crore see this kind of an interest.”

In its third attempt to go public, Mobikwik has not only downsized its IPO but also significantly slashed its valuation. In 2021, the company was valued at $921 million in the private market, but it is now aiming for a valuation of around $250 million. These adjustments appear to have worked in favor of the Peak XV Partners-backed firm.

Comparison with Paytm

Given that both Mobikwik and Paytm originated in the digital payments and mobile wallet space, comparisons between the two are inevitable.

Mobikwik, with its emphasis on financial services, is clearly following a similar path to Paytm—expanding from mobile wallets and Unified Payments Interface (UPI) to consumer credit and merchant payments, a trajectory Paytm also took. While Mobikwik operates on a much smaller scale, investors may be hoping it can replicate Paytm’s success.

As of Friday, Paytm’s stock closed at Rs 984.20 on the BSE, giving the company a market capitalization of Rs 62,731 crore.

Business Challenges 

Although the company has strategically structured the IPO and timed the listing effectively, its business outlook still faces significant challenges, which will be its next major hurdle.

Credit Business: The company specializes in buy-now-pay-later services through Mobikwik Zip and unsecured consumer loans via Zip EMI, a sector currently facing intense regulatory scrutiny. It depends on banks and non-banking financial companies to underwrite these loans. As traditional financial institutions are scaling back on many of their partnerships, the future growth of this business will come under close scrutiny.

P2p Slowdown: Peer-to-peer lending, a segment where Mobikwik had developed a solid business, was nearly halted by the Reserve Bank of India earlier this year. Mobikwik Xtra, powered by Lendbox, an NBFC-P2P, faced significant backlash from customers on social media over changes to its investment rules earlier this year.

Payments: Mobikwik faces its own set of challenges in the core payments business. It holds just a 1% share of the UPI transaction market and the mobile wallet sector has slowed, with consumers opting for UPI Lite over mobile top-ups. The platform had to re-apply for a payment aggregator license and has been granted in-principle approval by the central bank for operationalising it in the merchant payments space.

Mobikwik Systems Limited, which is the parent company of Mobikwik, would be listed on the stock exchanges on the 18th of December.  After a successful book-building process, it will be hoping for a strong listing performance.