Decoding Pine Labs' DRHP: Fintech aims to raise Rs 2,600 crore via an IPO

Time of India

2 days ago

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Invest in payments infrastructure (which can help in cross-selling products), offer credit solutions at checkout, and build customer loyalty. The company wants to target midmarket and smaller merchants for future growth opportunities. With its UPI-first merchant payments platform Pine Labs also wants to get into the micro-merchant ecosystem, a sector dominated by QR code companies such as BharatPe and PhonePe.
Another area of focus for Pine Labs will be international expansion, especially in Southeast Asia and West Asia. The company is focusing on global expansion to target fatter margins in those geographies and harness advantages of scale to boost the margins of the overall business.
Having expanded a large part of the tech-first business through the acquisition route, Pine Labs wants to continue with this strategy and tap inorganic growth opportunities wherever possible.
Merchant payments, both in-store and online
Fintech infrastructure plays to help other financial services players build fintech products through APIs.
Credit solutions at checkout points, which can help merchants increase their customer loyalty and engagement with brands. Pine Labs gets a fee for processing transactions for these merchants or brands. 4. Pine Labs wants to double down on its platform for issuing prepaid instruments such as gift cards and also for acquiring merchants for banks, helping them with digital payment solutions.
Noida-headquartered merchant payments company Pine Labs has filed its draft red herring prospectus (DRHP) with stock market regulator Sebi. The company plans to raise Rs 2,600 crore through a fresh issue and an offer for sale (OFS) of up to 147.8 million shares.Backed by global investors such as Peak XV Partners (formerly Sequoia India ), Mastercard, PayPal and Temasek, Pine Labs is seeking a valuation of around $4-5 billion through this public issue, according to people in the know.The payments company was primarily owned by Peak XV Partners until 2018 and has attracted global investors to its cap table over the last six years. The company raised more than a billion dollars in venture funding and Peak reduced its shareholding to around 20% from around 90% six-seven years back. In 2022, Pine Labs achieved a valuation of $5 billion.Besides the global institutional investors, Pine Labs also counts multiple founders in the Indian startup ecosystem among its individual investors. Dream11 founder Harsh Jain, Indifi cofounder Alok Mittal, Swiggy cofounder Sriharsha Majety, Freshworks founder Girish Mathrubootham, and Unacademy's Gaurav Munjal have been mentioned as shareholders in the company.Once Sebi approval comes and the book building process is completed, Pine Labs will become the third venture-funded payments company to list on the Indian stock exchanges. Paytm and Mobikwik are the two other listed payment startups.ETtech looks at the major aspects of the draft prospectus filed by Pine Labs.Pine Labs was initially built as a point of sale (PoS) company to service retailers. But over the last five years, the company has transformed into a larger fintech firm, in part by taking the inorganic path.In 2019, Pine Labs entered the gift card space by acquiring Accel-backed Qwikcilver Currently, Pine Labs has taken the gift card solution to new geographies, including the US and Australia.By acquiring PoS company Mosambee , Pine Labs, which was a major player in the organised retail segment, marked its entry into the small and medium enterprise segment, digitising payments among longtail merchants as well.By acquiring Southeast Asian fintech platform Fave , Pine Labs managed to set foot in that market. The acquisition also allowed Pine Labs to build a consumer-facing presence in India, offering Unified Payments Interface ( UPI ) payments and rewards.In a bid to compete with the omnichannel business bets of Razorpay and Paytm, Pine Labs also entered the online payments business By diversifying its business bets, Pine Labs ensured that it had an entire bouquet of offerings for its clients with a diversified revenue channel.Pine Labs serves 915,731 merchants, 666 consumer brands and enterprises, and 164 financial institutions across India and overseas, according to details shared in its prospectus. This makes it one of the largest merchant payment processors in the country.Profits had remained elusive for years, but in the last financial year, Pine Labs crossed the Rs 100 crore monthly revenue run rate and turned profitable in the first nine months of the year (Q4 and full-year results have not been given in the DRHP). It reported a net profit of Rs 26 crore on an operating revenue of Rs 1,208 crore.In comparison, Paytm, which has a large consumer facing business along with a merchant payments arm, reported Rs 6,900 crore in revenue in FY25. CCAvenue, another predominantly online merchant payments firm, reported total revenue of Rs 3,276 crore in FY25 and a net profit of Rs 160 crore.Pine Labs has increased its revenue 44% in three years, from Rs 933 crore in FY22 to Rs 1,344 crore in FY24. Last year it had reported a net loss of Rs 187 crore.Pine Labs will invest in product building in a bid to remain competitive, according to the prospectus. It has set out the following targets for business growth.Industry veterans who have tracked Pine Labs for years pointed out that the company has transformed itself to stay competitive in the era of fintech disruptors. However, the transformation resulted in its expenses shooting up to Rs 1,877 crore in FY23; this was brought down to Rs 1,622 crore in FY24.Also with zero-MDR payment instrument UPI displacing debit cards as a major merchant payment mode, processors such as Pine Labs have missed out on a major revenue generation opportunity.Pine Labs has structured its business across four major verticals.The company visualises itself as being at the intersection of payments, brands, merchants, and credit and financial services players like banks.Over the last few years, with UPI becoming the default payment mode for Indian consumers at merchant outlets, generating revenue from core payments has become a challenge for every payment processor. By betting on new revenue lines through value-added services and credit products, companies such as Pine Labs are hoping to widen their business margins.