Pine Labs, a leading merchant commerce platform, is gearing up for a significant step in its growth story with plans to raise approximately $1 billion through an Initial Public Offering (IPO) in India. With a valuation potentially exceeding $6 billion, this IPO is set to be one of the largest by an Indian fintech firm since Paytm's parent company, One97 Communications Ltd., raised around $2.5 billion in 2021. The IPO could include both new and secondary shares, and there is potential for a pre-IPO fundraising round as well.
About Pine Labs
Pine Labs operates as a comprehensive merchant commerce platform, offering point-of-sale (POS) solutions that enable merchants to accept payments via plastic cards and QR codes in-store. The company's suite of products includes buy now, pay later (BNPL) options, invoice management, gifting solutions, and e-commerce enablement. With a valuation exceeding $5 billion, Pine Labs is backed by prominent investors like Peak XV, Fidelity, Invesco, Temasek, PayPal, and Alpha Wave, reflecting its strong position in the fintech industry.
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Strategic Shift: Relocating to India
In a strategic move, Pine Labs has received approval from a Singapore court to relocate its domicile to India, merging its Indian and Singapore entities (PLI and PLS). The final approval from the National Company Law Tribunal (NCLT) is still pending. Once approved, the Singapore entity will be dissolved, and PLI will assume full ownership of PLS’s assets, liabilities, and legal responsibilities. This consolidation is expected to lead to cost savings, streamlined operations, and standardized business processes.
Relocating to India is also expected to simplify Pine Labs' shareholding structure and enhance economies of scale. The company had previously filed for a confidential US IPO in 2022 to raise $500 million but paused those plans due to unfavorable market conditions. This move aligns with a broader trend among Indian start-ups, as seen with companies like PhonePe, Zepto, Meesho, Razorpay, Udaan, and Flipkart, which are also considering shifting their domiciles back to India.
India’s Growing Appeal for Start-Ups
India has emerged as the world’s third-largest start-up ecosystem, home to over 1.25 lakh start-ups and 110 unicorns. The trend of relocating to India is driven by several factors, including a robust market ecosystem, higher valuations, and a more favorable IPO market. Start-ups valued under $20 billion often struggle to attract significant analyst coverage in developed markets, leading to limited institutional investor interest.
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India’s IPO market has experienced significant growth, becoming one of Asia's most active, with larger share sales attracting foreign investors. This trend could also impact larger players like Flipkart, which, while unlikely to go public in 2024, could benefit from a move back to India by positioning itself for a future IPO.
Financial Performance
Pine Labs has shown resilience in its financial performance, with India accounting for 91% of its operating income in FY23, while Singapore contributed 4%. The company also generated Rs 166 crore in non-operating income from interest on deposits, gains on mutual funds and investments, and deferred tax credits. Despite rising expenses, Pine Labs managed to reduce its losses by 12.36%, bringing them down to Rs 227 crore from Rs 259 crore in FY22. Excluding depreciation and impairment, the financial outlook is more favorable, with a Return on Capital Employed (ROCE) of -4% and an EBITDA margin of 8%. However, the company spent Rs 1.25 to earn every rupee in FY23, highlighting the challenges of managing costs in a competitive fintech environment.
Pine Labs stands at a critical juncture in its growth journey, with a planned $1 billion IPO and a strategic shift to India that could unlock new opportunities. Despite rising costs, the company has successfully doubled its revenue and cut losses, positioning itself well in the competitive fintech sector. The move back to India, coupled with streamlined operations and a simplified structure, underscores the growing appeal of the Indian market for start-ups. As Pine Labs prepares for its IPO, it is well-positioned for continued growth and success in the rapidly evolving digital payments landscape.
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