Stock To Buy: Buy This Low Priced Fintech Stock For Potential Gains Of 84%

KR Choksey Institutional in its recent report has given a 'Buy' recommendation on a low priced fintech stock - Infibeam Avenues. Regarding the scrip, the brokerage mentions in its report that "TPVs and NTRs drive profits growth but new business margins dilutive due to low scale".

Infibeam Avenues- About the company

The company is a multinational Financial Technology Company offering integrated & scalable digital platforms consisting of Digital Payment Solution under the brand name CCAvenue and Enterprise Software solutions under the brand name BuildaBazaar. The company is the only listed profitable fintech conglomerate with an all-inclusive fintech portfolio.

This is a small cap company with a m-cap of Rs. 4068 crore.

Target price and potential gains:

The buy on the stock is recommended for a target price of Rs. 28. So, considering the last traded price of Rs. 15.2 apiece on the NSE, the scrip can offer potential gains of 84%.

Q1Fy23 highlights as put by the brokerage:

The company's consolidated revenue increased 93.3% YoY (+13.2% QoQ) to Rs. 4.18 billion in Q1FY23, driven by a strong rise in TPVs and Net Take Rate (NTR) to 6.90 paise in Q1FY23.

 

Gross Profit Margins (GPM) volatile amid change in the revenue mix:

"The fall in the GeM platform TPVs (which have higher gross margins) QoQ due to seasonality and international CC avenues including the Issuance business (GoPayments), which have lower margins, as they are recent start-ups, led to consolidated GPM declining 650 bps YoY (-299 bps QoQ) to 17.6% in Q1FY23", adds the brokerage.

"The company believes that the new businesses such as GoPayments, the international CC avenue business, Express settlement (take rate of around 1-2 basis per value of the transaction), merchant lending, besides offline PoS business once become 20-30% of the revenue from less than 5.0% of the revenue as of Q1FY23, over a period, will further enhance the company's GPMs, as all these businesses have higher take rates than India business", notes the brokerage.

Valuation and view

"The company, as expected, has been clocking in very strong growth in TPVs, GTRs, and NTRs due to a strong recovery in revenue and payments mix. Also, new businesses are expected to drive gross margins over the long term once it reaches scale. However, as the new businesses are margin dilutive currently, we lower the earnings CAGR over FY22-FY24E. With the 5.23 paisa rise in consolidated GTRs YoY and 4.75 paise rise in its QoQ in Q1FY23 and strong rise in TPVs we revise up the revenue CAGR to 37.6% (vs. 36.1% CAGR over FY22-FY24E) but lower the EBITDA CAGR estimate to 28.7% CAGR (vs. 36.1% CAGR, each, expected earlier over FY22-FY24E) as the company's margins remain under pressure due to new businesses. Infibeam is trading at 1.9x/1.7x/1.2x its
FY23E/FY24E/FY25E Price/Sales (P/S) multiples, respectively. It is similarly trading at 35.0x/27.1x/17.6x its FY22/FY23E/FY24E PE
multiples. Given the strong growth witnessed in TPVs and NTRs at around an average 100.0% growth YoY and at around 30.0% YoY, respectively, over the last few quarters, we continue to value the company on a P/S multiple of 3.0x on FY24E sales", notes the brokerage.

 

Disclaimer

The stock has been recommended by the brokerage firm KR Choksey and readers should not construe the report as an investment advice and should engage in their own due diligence.