ItzCash Revisited - A.K.A. Ebix Ready To Explode

Aug. 26, 2017 12:21 PM ETEbix, Inc. (EBIX)41 Comments
Manoj Madhavan profile picture
Manoj Madhavan


  • On May 24, 2017, EBIX announced the largest acquisition in its history, agreeing to pay $120M for ItzCash.
  • One month later, EBIX committed to spend another $100M on bolt-on acquisitions in the Indian FinTech space.
  • EBIX followed up that promise on Aug. 17, 2017 by agreeing to acquire the Money Transfer Service Scheme business of Wall Street Finance Limited, along with the acquisition of its subsidiary company Goldman Securities Limited, for $7.4 million.
  • Just 4 days later, on Aug. 21, 2017, EBIX announced that it has entered into an agreement to acquire the Money Transfer Service Scheme business of YouFirstMoney Express Private Limited.

ItzCash revisited

On May 24, 2017 Ebix Inc. (NASDAQ:EBIX) announced the largest acquisition in its history, agreeing to pay $120M for ItzCash. In my previous piece, written shortly after the ItzCash acquisition, I listed the various revenue streams and profit centers of ItzCash. It turns out that initial media reports about Itzcash’s revenues at the time of acquisition were overstated. However, as I wrote in the comments sections of my article, even if the initial estimates for revenue and projections for revenue growth were chopped by 50%, ItzCash still has the potential to become a blockbuster acquisition for EBIX. Robin Raina has demonstrated with numerous past acquisitions that he can reduce redundancies, streamline operations and drastically improve operating margins at the acquired companies. This goes beyond cutting redundant staff in HR and other standard post acquisition maneuvers. A big part of the operating margin improvement comes from EBIX's operating leverage which I discuss later on in this piece.

The $100M additional commitment

On July 26, 2017, RR announced an additional $100M commitment to expand the ItzCash investment in India. From the press release:

"Ebix has set up an aggressive growth path ahead of itself, both in terms of revenues and operating income."

“We are accordingly committing $100 million fund to this growth path and will not shy away from scaling this investment upwards sizably for the right opportunities”

Think about this for a moment. The ADDITIONAL commitment to the FinTech space in India is greater than all the two dozen or so acquisitions EBIX has made in the last 19 years! Only the ItzCash acquisition is bigger than this!

Two acquisitions in 4 days

EBIX followed up the July 26, 2017 announcement of an additional $100M commitment with two acquisitions in short order.

On Aug. 17, 2017, EBIX agreed to acquire the Money Transfer Service Scheme business of Wall Street Finance Limited [BSE: WSFIN], along with the acquisition of its subsidiary company Goldman Securities Limited, for $7.4 million.

On Aug. 21, 2017, EBIX announced that it has entered into an agreement to acquire the Money Transfer Service Scheme business of YouFirst Money Express Private Limited.

During the earnings call on Aug. 08, 2017, RR talked about disintermediation and consolidation in the FinTech market. Both acquisitions complement the ItzCash acquisition and fit nicely with RR’s stated goals of disintermediation and consolidation. Cut out middleman! Be a one-stop shop!

Western Union’s money transfer business in India

Western Union (WU) has a thriving money transfer business in India. When you travel in India you cannot fail to notice the Western Union signs at practically every corner shop. A large number of Indian nationals living and working in various parts of the world, particularly in the Middle East, use Western Union to send money to their family and friends in India. About 10% of Western Union’s inward remittance was being handled by Wall Street Finance and about 15% by YouFirst. With these two acquisitions, EBIX will handle 25% share of Western Union's inward remittance flows in India.

From the website of Wall Street Finance:

“Spice Money is one of the leading Principal Agents for Western Union in India. Money sent through Western Union can be received through our network of 36 Branches and over 5000 sub-agents spread across India.”

From the press release announcing the YouFirst acquisition:

“YouFirst Inward Remittance Exchange Encompasses 10,000+ Distribution Outlets, 37 Branches, Processing over 2.3 Million Transactions Per Annum.”


“…With a market share of almost 15% percent of Western Union's inward remittance flows in India, YouFirst is the third largest international remittance player in India. The acquisition of YouFirst and Wall Street MTSS inward remittance assets, gives Ebix approximately 25% of the inward international remittance market in India, further strengthening Ebix's position in the Financial Exchange market in the country. Ebix intends to consolidate both these acquisitions into its Financial Exchange operations bringing significant synergies and reducing redundancies to the combined operation...”

Operating leverage

EBIX has a large, highly trained, native workforce in India. This gives EBIX significant operating leverage when it comes to integrating the ItzCash acquisition and developing new products and offerings in and around the FinTech space. EBIX has a large pool of programmers, business analysts and other specialists in Noida and other facilities in India and this workforce has completed successful implementations of multiple projects in the health care and government (eGovernance) space. They can be quickly tasked with working on ItzCash’s suite of products and weaving those products into new offerings in the insurance market and into other product lines and geographies. This is, in essence, how EBIX will be able to improve and expand the ItzCash suite of products while improving operating margins.

Other notable announcements

While all the acquisition, merger and integration activity is going on in India, EBIX continues to win substantial projects in other countries. The London PPL project was a huge win and continues to proceed well, delivering solid revenues and cash flows to EBIX each quarter. Meanwhile, a large contract was awarded to EBIX in Brazil and a large e-governance contract was awarded to EBIX in India.

From the press release accompanying the second-quarter earnings call on Aug. 08, 2017:

“Over the next few quarters, we expect substantial revenue growth from a number of areas – principal amongst them are the revenues expected to be generated from the execution of a large contract with one of the largest insurers in Brazil, a large e-governance contract with a public sector undertaking in India, continued growth from our financial exchange initiatives in India, and many new insurance exchange related contracts in US and Australia.”

In other words, EBIX is a solidly profitable company with a diversified revenue base that will continue to generate cash flows, enabling EBIX to develop and expand in the FinTech space in India.

A few words about the short thesis

Just a few years ago, EBIX's stock was in the single digits. An IRS audit and a DOJ investigation provided fuel to the shorts. Remember Gotham City Research and the series of short attacks, articles and blog posts? “EBIX is a fraud.” “They are avoiding taxes by booking revenue in low tax regimes.” “Money laundering!” “Roll up acquisition.” All kinds of charges. Guess what? The IRS audit was settled for less than $2M – a mere slap on the wrist compared to the $100M+ the shorts were expecting. The DOJ investigation went nowhere. The stock has risen by over 400% since then. But the short interest as a percentage of float still remains high. There are some shorts still inhabiting message boards like StockTwits talking about goodwill writedowns, earn out reversals and so on. Here is my take on that. These are non-cash charges. They do not affect operating cash flows except for a potential positive effect of lowering income taxes. In any case, the process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points in the analysis. So, ignore the noise. Look at the revenues and the cash flows. Look at the explosive growth of FinTech in India. Look at Robin’s impressive track record spanning 19 years and over two dozen acquisitions. Then go and buy some shares of EBIX and sleep in peace.


EBIX entered the FinTech market in India with a very large acquisition in May 2017. It followed this up with two smaller acquisitions a few months later. The story is not over yet. The party is just getting started. I expect the company to announce one or more acquisitions in the coming months. The FinTech market in India is in its nascent stages and is expected to experience explosive double-digit growth for many years to come. EBIX is going to be a strong player in this market. I expect this space to generate double-digit percentage growth in revenues for EBIX for the next decade or so. More specifically, looking out over the short and medium term, I expect the stock to double from its current levels in 3 years or so.

This article was written by

Manoj Madhavan profile picture
Manoj Madhavan, CFA, CFP, is a Principal at Oxford Chase Advisors LLC, a Dunwoody, Georgia based Registered Investment Advisory (RIA) firm. His investment philosophy is loosely based on Warren Buffet’s principles of value investing.Manoj was born in Tiruchirapalli (Trichy), India. He has a Bachelor's degree in Engineering from Indian Institute of Technology, Varanasi, India, a Master's degree in Engineering from Louisiana State University, Baton Rouge and an Executive MBA from Emory University, Atlanta.

Disclosure: I am/we are long EBIX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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