Ebixcash, a wholly-owned subsidiary of Ebix (NASDAQ:EBIX), is readying to go public in India. Recently, multiple articles on leading business magazines in India talked about the IPO. The expectation is that the company will receive a multibillion-dollar valuation. However, the parent company Ebix currently has a valuation of just under one billion. The mismatch in the valuations makes the current stock price of the parent company Ebix very attractive.
Ebix is a US-based technology company offering insurance and annuity exchange services internationally. Large insurance and financial companies use their cloud-based insurance exchange infrastructure along with the consulting services of Ebix. Consistent revenue from the cloud-based services combined with the low cost of operations from India based engineering team has made it possible for Ebix to report year after year of profit and growth.
Robin Raina, the current CEO of Ebix, joined Ebix in 1997 as a VP when it was known as Delphi Systems. After that, he became the CEO and chairman of the board and changed the name to Ebix. Once becoming the CEO, Robin Raina directed the company to become an insurance infrastructure player by focusing on SAAS-based insurance exchanges and consultancy services. He grew the company by making several acquisitions within the US and internationally.
In a recent article on Forbes India, Robin Raina talks about when he joined Ebix, how it was in trouble with 11m in annual revenue with a loss of about $19m. However, since he took over as the CEO, it has grown in revenue consistently for more than 84 quarters to more than $625m of annual revenue with about $100m in EBITA profit in 2020.
While Ebix was named one of the fastest-growing top 100 companies by the Fortune Magazine multiple times, over the years, the investment community and Wall Street have not been favorable to Ebix stock. As the company had grown with many international acquisitions, the company structure became more complex, and so did the accounting of the revenue. This increased complexity made it easy for some investors who were short on the company to create a negative perception of the company and the CEO. The CEO Robin Raina for his part has not been very comfortable with US investment analysts and the investment community and is not perceived as investor friendly.
Ebix stock price has been on a yoyo ride and currently trading at a much lower valuation compared to its peers. It is partly due to the negative campaigns and short attacks, along with some self-inflicted wounds. In Oct 2018, Ebix suddenly changed their internationally renowned auditor for an unknown auditor from India. This unexpected move hit the stock price hard. Again in Feb 2021, the then auditor of Ebix RSM resigned suddenly, saying that Ebix management was not providing enough information about the unusual transactions surrounding the gift card sales in India. This again hit the Ebix shares hard, dropping the share price by more than half. The Ebix shares have not still recovered fully from this despite all the talk about the IPO of Ebixcash.
As India embarked on the financial sector's digital transformation starting with demonetization in 2017, Ebix acquired Itzcash, an e-wallet, bill payments, and remittance player. Following that, Ebix acquired more than two dozen companies in foreign exchange, international remittance, Travel, wealth and lending management, fintech IT, and BPO to form Ebixcash, a wholly-owned entity. As a result, Ebixcash has grown from under 2000 employees to around 10500 today in a short four-year period.
With these acquisitions and the seemingly successful integration of these companies, Ebixcash has become a significant player in the fintech space in India. Their services cover Banks, corporate customers, NBFC, Insurance carriers, B2B travel providers, transport providers, schools, and end consumers. In addition, Ebixcash can combine these services to provide comprehensive solutions and cross-sell multiple services to customers where they overlap. Ebixcash is the leader in foreign exchange, remittance and also has a significant share of corporate travel in India.
Most of the credit for the creation of Ebixcash goes to the vision of the Ebix CEO Robin Raina, who has been passionate about India and Ebixcash.
Robin Raina seems to have reincarnated into a different Avatar in India since he moved back there in 2018. He has a stated mission of creating a MultiNational Company (MNC) out of India with a clear vision of how to achieve this:
Robin Raina has given multiple interviews with many top business channels such as CNBC tv18, India Today, and Republic TV. In these interviews, most of which are in English and some in Hindi, he seems to be very articulate and consistent on his mission and vision.
These are interesting interviews that sometimes feel like infomercials. The interviewers at times swoon over his charisma, flashy office with two Harley Davidson bikes on display, and his philanthropical work of building close to 6000 homes in slums for homeless people in Delhi.
These business channels are watched by millions of Indian investors and should increase the name recognition for Ebixcash among them as it progresses towards IPO.
Robin Raina has been talking about taking Ebixcash public for a while now. The plan is to use the proceeds from the public offering to acquire other companies, both domestic and foreign. The Indian stock market did exceptionally well in 2021, and companies that went IPO towards the end of 2021 received huge valuations. Companies in fintech such as Policy bazaar and Paytm received more than 40 times the revenue in FY21 even though they have been losing money and the path to profitability seems to be very long for these companies.
However, when Paytm was listed on BSE, it lost 27% of its valuation in the first two days of trading mainly due to concerns regarding its path to profitability. With the recent downtrend in US technology stocks, Paytm stock price has lost more than 50%. Share prices of Policybazaar and Zomato have also dropped significantly. Some companies, such as MobiKwik, are postponing their IPO due to the unfriendly market conditions. However, all these stocks have one thing in common. They all are losing money and do not have a clear pathway to profitability in the near term. That is where Ebixcash shines. Though not official, Robin Raina has indicated that Ebixcash revenues are expected to be around $800m for 2021 with an EBITA profit of about $100m.
India has implemented many reforms after the demonetization in late 2016, in the areas of uniform taxation code (GST), digital payments (UPI), and biometric identification (Adhaar). This has created an environment where the opportunity for financial services for a huge swath of society has opened up. As a result, while the Indian economy was hit hard by the pandemic, there has been a remarkable recovery in recent months.
Prior to the pandemic, Indian economy was one of the fastest growing economies in the world. After an optimistic forecast in Oct 2021, IMF updated the forecast in January which lowers the growth projections for most of the selected economies of the world. One of the exceptions is India which is expected to grow by 9% or more. The growing economy and increasing acceptance and reach of financial and other online services offer enormous growth potential for Ebixcash.
On the Q3 2021 earnings call, Robin Raina mentioned that the DRHP filing for the Ebixcash IPO was expected to happen in December or January. Though the filing has not happened yet, there are signs of IPO preparations going in full swing. For example, in January, Ebixcash announced the appointment of Uma Shankar, former Reserve Bank of India executive director, to its board. In addition, in the last few weeks, three reputed Indian business magazines (Business world, Business India and Forbes India) have run cover stories on Ebixcash and the CEO Robin Raina.
Unlike the TV interviews, these cover stories go deeper into the emergence of Ebixcash and Robin Raina's background. For example, the Business Today article carries interviews from the heads of different divisions of Ebixcash, giving exposure to the second-tier management in Ebixcash.
Here is how Sourav Majumdar, editor of Business Today, introduces the cover story of Ebixcash and Robin Raina in his editorial "It is difficult to describe someone like Robin Raina. The multifaceted boss of US insurance solutions company Ebix Inc.-and its Indian subsidiary, the fast-growing fintech company EbixCash-is as colorful a personality as the sprawling office he sits in. But beneath all the glamour and the hype around him is a razor-sharp business brain and a steely determination to grow his company ..."
These magazines are among the top five business magazines read by Indian investors, and all these cover stories talk about the upcoming IPO of Ebixcash.
It is not clear what kind of valuation Ebixcash is expected to command. Based on the interviews with the CEO, the expectation seems to be in the $5B range. We have recommended a lower IPO listing price, particularly in the context of the ill-received Paytm IPO. It is worth noting that even in the higher range of the IPO valuation, the sales multiple will be much lower than that of the peer fintech companies in India. With Indian investors cautious about the profitability of IPO-bound companies, Ebixcash IPO might come as a breath of fresh air. Robin Raina indicated that the IPO would happen sometime from April to June. For this to happen, the DRHP needs to be filed at the latest by the end of February.
The current stock price of Ebix seems to ignore the potential impact of the Ebixcash IPO completely. This could be because US investors have limited exposure to the Indian economy and its buoyant IPO market. However, some institutional investors, such as BlackRock, seem to realize the potential and recently have increased their position on Ebix (Black Rock owns 12.8% of Ebix valued at more than $100M).
With a current valuation of under $1B for Ebix, an IPO of Ebixcash, even at the lower end of the valuation, could make for a significant return as the majority of Ebixcash will be owned by the parent Ebix even after the IPO. On the other hand, if Ebixcash gets listed at a valuation in the $5B range, as the management indicates, the potential return on the parent Ebix stock could be enormous.
At this point, the most significant risk is that the IPO of Ebixcash gets pushed out or does not happen for whatever reason. While Robin Raina has been talking about Ebixcash IPO for more than two years, for the past year or so, he has pointed to IPO by early 2022 with an increasing level of confidence. In the last earnings call in Nov, Robin Raina mentioned a possible DRHP filing either in Dec 2021 or Jan 2022. However, we are already in Feb 2022 with no updates on the DRHP filing. This is a big concern.
Missing the IPO window by looking for the perfect time would make all the effort put in so far meaningless. The reputation of the company and the CEO in the eyes of the Indian investment community is on the line. In addition, there is the risk of the current IPO window shutting down as the US Fed increases the rates, resulting in a flight of capital from India. Once the IPO is done, Ebixcash is expected to do better than its peers even if the investment conditions worsen as Ebixcash is making money.
Other risks, particularly related to concerns about their accounting practices, are covered in a previous article here. However, Ebix seems to have improved its accounting practices by employing two accountants for Ebixcash to do an independent audit and sign off.
Though it has been delayed for a while, Ebix seems to have done all the groundwork for the preparation of the IPO of Ebixcash. Growing revenue with profits, reputable people of the board, excellent TV and press coverage - all point to the potential of a successful IPO.
Even if the IPO does not happen, Ebix's stock price will remain at around the current levels or trend down a bit lower. However, if the IPO does happen, which is where recent signs are pointing, Ebix's stock price will start reflecting the value of the Ebixcash subsidiary. At that point, we are looking at a huge and potentially multi-fold increase in the stock price. The mismatch between the current valuation of Ebix with that of Ebixcash indeed offers an extraordinary opportunity.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of EBIX either through stock ownership, options, or other derivatives. 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.