Hundreds of million Indians are still unbanked, while more still are underbanked
\nFindi could grab this opportunity, being a pure-play Indian-focused fintech
\nWe reached out to Findi\u2019s non-executive chairman, Nicholas Smedley<\/p>\n
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Despite increased internet usage and tremendous growth, more than 350 million Indians are still either unbanked or underbanked.<\/p>\n
Distance to a banking facility is a major barrier, particularly for those living in rural areas where cash still rules.<\/p>\n
These people often rely on alternative financial services such as\u00a0money orders or transfers.<\/p>\n
The Indian government, for its part, has encouraged people to open a bank account by launching ambitious programs like the People\u2019s Wealth Plan<\/em>, or by asking banks to offer zero-balance accounts with no opening fees.<\/p>\n As these programs are continually being rolled out across the country, there\u2019s an obvious big opportunity here to provide banking services to the masses.<\/p>\n ASX-listed fintech Findi (ASX:FND)<\/a><\/strong> is an India-focused company<\/strong> that has marched ahead to take on this challenge.<\/p>\n Findi is now one of the largest non-bank ATM operators in the world\u2019s most populous country, with a network of 20,500+ ATMs<\/strong>.<\/p>\n The network is being operated through the company\u2019s 100% interest in TSI International<\/em>, a digital payments and financial services business in India.<\/p>\n \u201cWe have over 20,000 ATMs that we own and manage across India, and we\u2019re in every state and territory,\u201d Findi\u2019s non-executive chairman, Nicholas Smedley,<\/strong> told Stockhead<\/em>.<\/p>\n \u201cWe also have 16,000 of what we call digital merchants across India as well, which facilitate last mile cash payments in online e-commerce for the growing rural sector across India.\u201d<\/p>\n \u00a0<\/p>\n Findi has been providing ATMs for the State Bank of India (SBI)<\/strong> \u2013 the country\u2019s largest bank \u2013 since 2016 through a third-party outsourcing contract.<\/p>\n That contract was supposed to end in December, but Findi has just secured a new 10-year contract with SBI that will see the company provide 4,219 more ATMs across the country.<\/p>\n It\u2019s expected the new contract will generate revenue of between $550m-$620m over the 10-year term, with a bottom line EBITDA of $250m-$280m.<\/p>\n \u201cSBI is just one of our contracts, and if you break that down, it\u2019s approximately $25-$28 million dollars EBITDA a year,\u201d says Smedley.<\/p>\n Unlike in Australia, ATMs in India are not hole-in-the-wall concepts but instead have dedicated rooms with air conditioning.<\/p>\n \u201cWe have a team that select the locations based on predicted foot traffic, and we take out a lease on those locations.<\/p>\n \u201cSo if the ATM contract was to ever be ended, we can simply turn that site into a Findi-branded ATM location at the end of the normal contract term.<\/p>\n \u201cThis means we have full control on those sites,\u201d Smedley said.<\/p>\n \u00a0<\/p>\n Of the 20,500 ATMs Findi operates in India, 12,000 are currently being operated for third parties.<\/p>\n \u201cThe other 8,000 ATMs we own ourselves, and they\u2019re across a number of key banks,\u201d explained Smedley.<\/p>\n These 8,000 ATMS are currently brown label ATMs, meaning that they\u2019re slapped with the bank\u2019s labels like SBI or CBI (which are the Australian equivalents of CBA or NAB ATMs).<\/p>\n \u201cBut the beauty is, we have a white label ATM license application on foot, which we\u2019re expecting to be awarded before the end of this year,\u201d said Smedley.<\/p>\n \u201cWhen that white label licence is awarded, the ATMs will be branded and deployed as Findi-branded ATMs.\u201d<\/p>\n The white label license is expected to provide numerous strategic advantages, such as supporting the integration of Findi\u2019s ATM and digital payments business and potential acquisitions.<\/p>\n Findi expects that following the white label deployment, those ATMs will deliver additional annual revenue of approximately $25-$28 million, and annual EBITDA of $7\u2013$9 million.<\/p>\n \u00a0<\/p>\n The economics of each ATM is also quite attractive.<\/p>\n The company estimates that one Findi-owned ATM delivers an enviable $65,000+ of cumulative free cash flows<\/strong> over its lifespan of 12 years, while the entire cost of one fit-out is only around $12,000.<\/p>\n \u201cSo the the internal rate of return or IRR that we actually get is greater than 35%,\u201d said Smedley.<\/p>\n \u201cThe payback period is approximately three years, which is when it will be completely paid off.<\/p>\n \u201cSo then we have seven years in this 10-year contract cycle, which means seven years of free cash coming off that asset with the capital capex already paid off.\u201d<\/p>\n \u201cWe also have a banking syndicate that have already agreed to completely fund the rollout of the capex for those contracts, so we don\u2019t have to raise any more equity in the business,\u201d added Smedley.<\/p>\n \u00a0<\/p>\n Smedley believes the opportunity for Findi is huge, with 350 million Indians expected to enter banking services over the next five years.<\/p>\n \u201cIf we can do India well, I don\u2019t think we need to concentrate on anywhere else,\u201d he said.<\/p>\n \u201cObviously we will always be looking at opportunities, but they need to make sense for us, and need to be able to leverage from our existing Indian capability.\u201d<\/p>\n Smedley sees Findi as one of the most undervalued stocks on the ASX at the moment.<\/p>\n \u201cOur market cap at the moment is around $29 million, but if you look at Indian trading multiples, we should be somewhere in the order of $200 million market cap.<\/p>\n \u201cWe don\u2019t need to raise any more capital. We\u2019ve got significant free cash flows.<\/p>\n \u201cAnd we\u2019ve already got the next couple of years of growth baked into the business organically, before we even look at other acquisition opportunities,\u201d said Smedley.<\/p>\n \u00a0<\/p>\n \ufeff<\/span><\/span>\u00a0 The post ASX fintech Findi to grab huge opportunity as 350 million Indians set to enter banking services<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"SBI contract<\/h2>\n
White label<\/h2>\n
Quick payback<\/h2>\n
Is Findi undervalued?<\/h2>\n
Findi share price today:<\/h2>\n\n
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