For starters, the demand has been phenomenal. The IPO was oversubscribed ~120 times, with retail investors leading the charge at ~135 times. Non-institutional investors weren’t far behind at ~109 times; even qualified institutional buyers booked ~120 times their share. The across-the-board excitement shows just how much buzz this IPO has generated.
What makes this IPO even more interesting is that all proceeds are being used for business expansion.
This is quite rare in the Indian market, where most IPOs include an offer for sale (OFS), allowing promoters or early investors to sell their stakes and cash out. Hyundai India’s recent IPO and LG India’s upcoming offering followed this approach. But MobiKwik has decided to reinvest every penny into growth, making this a standout move.
View Full Image
MobiKwik’s two pillars: Payments vs financial services
MobiKwik’s business rests on two key pillars: its payments business and its financial services arm. Each has its own unique role, but one is clearly outpacing the other in driving growth.
The payments business is what most of us know MobiKwik for. It earns fees from merchants whenever users make purchases using MobiKwik’s wallet, UPI, MobiKwik-issued card, or even through buy-now-pay-later (BNPL) or EMI products. On the other hand, the financial services business revolves entirely around lending, primarily through products like MobiKwik ZIP and MobiKwik ZIP EMI, which allow users to buy now and pay in instalments.
Here’s where it gets interesting: If you dive into the data from MobiKwik’s draft red herring prospectus (DRHP), it’s clear that the financial services arm is now the star of the show. Its revenue has skyrocketed from ₹97.6 crore in FY22 to ₹557.8 crore in FY24—a stunning 5.7x growth in just two years.
Meanwhile, the payments business tells a different story. Revenue has actually declined from ₹428.9 crore in FY22 to ₹317.1 crore in FY24. The numbers leave little doubt: MobiKwik is increasingly betting on its financial services business for future growth.
View Full Image
How does the MobiKwik platform work?
The success of MobiKwik’s business model depends on two things:
- The number of users on the platform (both individuals and merchants).
- How many products these users adopt.
For consumers, MobiKwik doesn’t rely on hefty fees. Occasionally, it charges convenience fees, but these are kept competitive to prevent users from jumping to other platforms. The real value for MobiKwik lies in its UPI offerings, which act as a gateway to onboard new users.
However, competition is fierce. For example, in November alone, MobiKwik processed around 17 million UPI transactions worth ₹3,000 crore. While that sounds impressive, consider this: PhonePe processed a jaw-dropping 7,400 million transactions worth ₹10 trillion in the same period. The gap is enormous, and bridging it won’t be easy.
View Full Image
The merchant side of the equation
MobiKwik’s payments business can also grow by enabling more merchants to accept payments through its platform. This is where things get strategic. Merchants pay an MDR (merchant discount rate) for processing transactions, and MobiKwik has taken active steps to onboard more merchants, even reducing charges to make the platform more attractive.
Currently, over four million merchants use MobiKwik for payment processing, and the number of active merchants continues to rise. But here’s the challenge: The payments space is dominated by players like PhonePe and Google Pay, who have already captured the mass market. Chipping away at their market share or significantly boosting revenue from payments alone seems like an uphill battle.
View Full Image
The revenue numbers reflect this reality: Payments revenue isn’t growing. This is why MobiKwik is leaning heavily on its financial services business to drive the next wave of growth.
MobiKwik’s moat: Leveraging payments for financial services growth
MobiKwik is doubling down on its biggest strength: Its vast distribution network. With over 150 million individual users and four million merchants, the company is leveraging its payments business to offer financial services—and this could be the key to unlocking massive growth.
The standout product driving this strategy is credit. MobiKwik offers two popular lending products:
MobiKwik ZIP: Short-term loans (up to 30 days) with smaller ticket sizes ranging from ₹1,000 to ₹60,000.
MobiKwik ZIP EMI: Longer-term loans (3 to 24 months) with higher ticket sizes between ₹10,000 and ₹2,00,000.
Thanks to these products, MobiKwik’s loan book has already reached an impressive ₹2,383 crore as of FY24. And there’s potential for this to double in the next two years.
How?
The company plans to invest ₹150 crore to expand its lending business by funding the mandatory loss default guarantee (LDG). This guarantee, which is 5% of the loan book, acts as a safeguard for lenders in case borrowers default. If the entire ₹150 crore is allocated, MobiKwik could grow its loan book by another ₹3,000 crore ( ₹150 crore/5%).
That’s solid growth potential if executed well.
View Full Image
The tier-2 and tier-3 push: A smart strategy
MobiKwik is also making a big play in tier-2 and tier-3 cities, where it already has significant traction. Around 55% of its users and 35% of its merchants come from these segments.
View Full Image
Expanding in these cities makes a lot of sense for a few reasons:
Lower customer acquisition costs (CAC): Unlike tier-1 cities, where competition is fierce and costly, acquiring users and merchants in smaller cities is more efficient. Concentrated efforts and on-ground teams help keep costs low while boosting the platform’s reach.
Repeat business is key: For a platform like MobiKwik, the more products a user engages with, the better. And MobiKwik’s data shows they’re doing this well. Over 80% of MobiKwik ZIP users return to use the product again. This high repeat rate indicates trust—a critical factor in the lending business.
When users trust the platform, they’re more likely to explore additional financial products. This increases revenue per user while simultaneously reducing acquisition costs as MobiKwik gets more value from existing users.
The power of operating leverage
MobiKwik’s business model thrives on operating leverage—a concept where costs stay relatively fixed as revenues grow. By offering more financial services to an increasing number of users, MobiKwik can significantly boost its profitability per user without a proportionate increase in costs.
Here’s how it works:
- Acquire users through cost-effective channels like payments.
- Introduce them to credit products like MobiKwik ZIP and ZIP EMI.
- Build trust through seamless experiences, ensuring high repeat rates.
- Scale the number of users and merchants, especially in less competitive markets.
This approach creates a virtuous cycle: more users, higher activation rates, and greater revenue per user.
Keeping it simple: Happy users, long-term growth
At its core, MobiKwik’s strategy is straightforward—acquire users, earn their trust, and keep offering them valuable financial products. The trust factor is critical, especially in lending, and MobiKwik has demonstrated it can retain and grow its user base.
By expanding in tier-2 and tier-3 cities and doubling down on financial services, MobiKwik is setting itself up for sustainable growth in a way that plays to its strengths.
Still betting on payments: Is MobiKwik late to the game?
MobiKwik is making a push to grow its payments business by adding value-added services and finding new ways to deepen its reach—beyond UPI. Their strategy? Expanding the use of EDC machines and soundboxes.
The company has announced plans to roll out over 25,000 EDC (electronic data capture) machines and 600,000 soundboxes to merchants. These devices are designed to make payment acceptance more seamless and efficient for merchants.
Why is MobiKwik focused on this now?
The idea is simple: more merchants using MobiKwik’s payment infrastructure means more growth opportunities. When merchants adopt EDC machines or soundboxes, they strengthen their relationship with the platform and create an entry point for additional services, like merchant loans and credit.
But there’s a catch. MobiKwik might be a little late to the party.
The competition: Paytm’s lead in soundboxes
Paytm has already established itself as a dominant player in this space, with seven million soundboxes in operation. Compared to that, MobiKwik’s planned rollout of 600,000 soundboxes seems modest. This raises the question: Can MobiKwik catch up in a market where players like Paytm have already set a high bar?
While the gap is significant, it’s not impossible to bridge. If MobiKwik can execute this strategy effectively, it could open up two critical opportunities:
Merchant lending: More payment acceptance devices mean stronger relationships with merchants, which can be leveraged for lending products like working capital loans.
Increased user adoption: A larger network of merchants accepting MobiKwik payments could lead to more users engaging with the platform. This would increase the cross-sell potential for other financial products.
View Full Image
Can MobiKwik deliver returns for investors?
MobiKwik’s IPO, with a valuation target of ₹2,200 crore, has drawn significant interest from investors. To put this in perspective, the company’s current revenue stands at ₹874 crore, with projections to close the year around ₹1,250 crore—a growth of over 40%. While this is impressive, investors should note that MobiKwik isn’t profitable yet, meaning any returns will depend on how effectively it can capitalize on its existing strengths and future opportunities.
Compared to its peers, the valuation has potential.
Paytm, a similar player in India, trades at a price-to-sales (P/S) ratio of 6, reflecting its scale and higher revenue generation. Globally, companies like PayPal trade at a P/S ratio of around 4. By this measure, MobiKwik’s valuation with P/S of 2.5x, leaves room for immediate returns, but its ability to grow quickly and efficiently will be the ultimate deciding factor.
For more such analysis, read Profit Pulse.
One of the most promising growth drivers is MobiKwik’s lending business, which leverages its extensive user and merchant base.
Products like loans against mutual funds (LAMF) are particularly interesting. LAMF is a secured lending product where mutual fund investments act as collateral for a revolving overdraft facility. Unlike unsecured loans, LAMF doesn’t require a default loss guarantee, making it a more scalable and efficient product. With India’s total mutual fund assets under management (AUM) exceeding ₹60 trillion, the potential for growth is immense. As of FY24, the total credit outstanding for such products stood at ₹70,000 crore, highlighting the opportunity for MobiKwik to carve out a significant share.
Beyond lending, MobiKwik has the potential to expand into other financial services, such as distribution of investment products. They are already doing it but one good product can change the direction entirely.
The foundation for success has already been laid.
With over 150 million users and four million merchants, MobiKwik has built a large, low-cost distribution network. Now, the focus shifts to monetizing this base by cross-selling financial products and scaling its lending offerings. Efficient execution will be key, as the company aims to roll out new products without incurring massive marketing expenses. This operating leverage, where revenues grow faster than costs, will be crucial for long-term profitability.
For readers, the premium MobiKwik commands hinges on how quickly and effectively it can execute its growth plans. The company has the infrastructure and user base to succeed, but the real challenge lies in turning those assets into sustainable and scalable revenue streams. If it can deliver on this promise, and that’s a big if, the stock could potentially gain significantly. However, as with any growth story, the proof will be in the execution.
Note: For this article, we have relied on data from the DRHP and industry reports. We have used our assumptions for forecasting.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. The views expressed are my own and do not reflect or represent the views of my present or past employers.
Parth Parikh has over a decade of experience in finance and research, and he currently heads the growth and content vertical at Finsire. He has a keen interest in Indian and global stocks and holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Previously, he has held research positions at various companies.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
