What you must know about RNFI Services IPO: Price Band ₹98 to ₹105 per share

About RNFI Services Ltd

RNFI Services Ltd was incorporated in the year 2015 as a financial technology (fintech) company to engage in offering B2B and B2B2C customer solutions. The company focuses on providing banking, digital, and Government-to-Citizen (G2C) services across India through its online portal and its downloadable mobile app. In terms of sub-verticals, RNFI Services Ltd offers business correspondent services, non-business correspondent services, money changing, and insurance broking. It has partnered with 11 leading PSU banks and payment banks to facilitate this flow and offer financial inclusion. As of the end of FY24, RNFI Services Ltd had processed more than 1.15 Crore transactions per month with a reach across 28 states, 5 UTs and over 17,900 pin codes. The company has about 1,405 employees on its rolls and more than 3.60 lakh network partners. RNFI Services Ltd offers domestic money transfer, Aadhaar-enabled payment system (AEPS), and Micro ATM services; apart from last mile doorstep services for e-KYC. In addition, RNFI Services Ltd also offer EMI collections, delinquent loan collections, and sales support.

Highlights of the RNFI Services IPO

Here are some of the highlights of the RNFI Services IPO on the SME segment of the National Stock Exchange (NSE). 

•    The issue opens for subscription on 22nd July 2024 and closes for subscription on 24th July 2024; both days inclusive.

•    The stock of RNFI Services Ltd has a face value of ₹10 per share and it is a book built issue. The book building price band for the IPO has been set in the range of ₹98 to ₹105 per share. The final price discovery will happen in the above price band only.

•    The IPO has only a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•    As part of the fresh issue portion, the company will issue a total of 67,44,000 shares (67.44 lakh shares), which at the upper band IPO price of ₹105 per share aggregates to fresh fund raising of ₹70.81 crore.

•    Since there is no offer for sale, the fresh issue will also double up as the overall size of the IPO. Therefore, the overall IPO size will also comprise of the issue of 67,44,000 shares (67.44 lakh shares) which at the upper band IPO price of ₹105 per share aggregates to overall IPO size of ₹70.81 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 3,84,000 shares as quota for market inventory. Choice Equity Broking Private Ltd has already been appointed as the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Ranveer Khyaliya, Nitesh Kumar Sharma, Deepankar Aggarwal, Rajan Kumar, Krishna Kumar Daga, Charanjeet Singh and Simran Singh Private Trust. The promoter holding in the company currently stands at 89.53%. Post the fresh issue of shares, promoter equity holding share will get diluted to 65.33%.

•    The fresh issue funds will be used by the company for funding working capital needs of the business, funding capex for purchase of micro ATMs and other technology hardware, strengthening technology stock and for targeted inorganic growth. A small part of the IPO proceeds has also be set aside for general corporate purposes.

•    Choice Capital Advisors Private Ltd will be the lead manager to the issue, and Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue is Choice Equity Broking Private Ltd. The IPO of RNFI Services Ltd will be listed on the SME IPO segment of the NSE.
 

RNFI Services IPO – Key Dates

Here are the key dates related to the RNFI Services Ltd IPO:

Data Source: Company RHP

In ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on July 26th 2024, will be visible to investors under the ISIN Code – (INE0SA001017). This credit to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO Allocation and Minimum Investment Lot Size

RNFI Services Ltd has announced a market maker allocation of 3,84,000 shares, which will be used as inventory for market making. Choice Equity Broking Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of RNFI Services Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹1,26,000 (1,200 x ₹105 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 2,400 shares and having a minimum lot value of ₹2,52,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.
 

There are no upper limits for investments by HNIs / NIIs in the IPO of RNFI Services Ltd.

Financial Highlights: RNFI Services Ltd

The table below captures the key financials of RNFI Services Ltd for the last 3 completed financial years. 
 

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY22 to FY24, being the latest year. 

•    The revenues over the last 3 years have grown at a healthy clip, with FY24 revenues about 5-times the revenues of FY22, despite a fall in sales in FY24 over FY23. However, being an IRR based pricing business model, the net margins are very low at just above 1%. That has been the median trend for the last 3 years. 

•    While net margins of the company have been relatively tepid at 1.14%, the other return margins have shown better traction in latest year. The return on equity (ROE) stands robust at 33.6% in FY24, while the return on assets (ROA) is also modestly strong at 5.6% in FY24. Both are up sharply from the previous year.

•    The asset turnover ratio or the sweating ratio has been healthy in the latest year at 4.91X and that only gets further accentuated when you look at the modestly healthy levels of the ROA. However, in an IRR based pricing model in the service industry, it is less about asset turnover and more about how the net margins traction gets built.
The company has latest year EPS of ₹5.85, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹105 per share at 17-18 times P/E ratio. That is not too expensive if you factor in the robust growth in the ROE, and the return on assets in the latest year. Also, if this growth continues into FY25, then justifying the valuations should not be too difficult, hopefully with improved net margins.

To be fair, RNFI Services Ltd some bring some intangible advantages to the table. It offers a comprehensive solution that encompasses B2B and B2B2C business verticals. The model is largely technology driven and hence it is scalable at short notice and with minimal additional investments. This business model is also relatively asset-light. Its network partnership is extensive and should be a great support to financial inclusion, especially in the last mile. The investors can look at the IPO from a longer term perspective with a holding period of 1-2 years. Ideally, investors must be prepared for the higher risk implicit in such IPO stocks; because as we have seen in recent months, there is a huge regulatory risk in this line of business. For now, the company has the moat to play out competition in the industry, so investors can look at the IPO favourably.