India’s Largest Non-Bank ATM Operator Files Papers For IPO: Here's What You Need To Know

India1 Payments Limited (IPL), the largest non-bank ATM operator, has filed papers for an initial public offering (IPO). The company plans to raise around Rs 150 crore through a fresh issue of shares while existing shareholders will make a partial or complete exit with an offer for sale.

IPL is the largest Indian independent non-bank ATM operator (white label ATM operator), based on the number of ATM transactions in Financial Year 2021. It is a subsidiary of the Banktech group, which is based out of Australia.

As of August 2021, IPL operates a network of 9,000 ATMs across multiple states and union territories in India. These ATMs are branded as “india1ATM”.

IPL has been a white-label ATM operator since 2014. The company operates in the semi-urban and rural areas to leverage the financial inclusion play in these areas. It accounts for one-third of the ATMs in India and has its stronghold in the southern white-label ATM market. With the government’s focus on financial inclusion with initiatives like Rupay cards, ATMs have performed well. ATMs also offer services like bill payments, taking deposits and other value-added services.

The gross transaction value (“GTV”) of cash transactions from IPL’s ATMs increased from Rs 270,787.74 million in 2019 to Rs 439,745.20 million in 2021. The number of transactions processed has also grown from processed 180.45 million in 2019 to 257.55 million in 2021. Despite lockdowns, the company has grown at a strong pace.

The company generates revenues based on a per-transaction basis. The customer’s bank pays the fees to India1 and not the customer. The Reserve Bank of India sets the interchange fees, which are currently as follows: Rs 17 for financial transactions and Rs 6 for non-financial transactions. The fees have seen an increase recently, indicating a favourable regulatory policy.

Revenues have grown at a compounded annual rate growth rate of 17 per cent per annum over the last three fiscals. Yet, the company has reported net losses in two of the last three fiscals. However, the company has generated positive cash flow for the past three fiscals.

Further, the company has been raising money through debt to finance its expansion. The company debt to equity ratio stands at 4.6 as of FY21. In FY19, the same figure stood at 8.3. The company plans to use its IPO proceeds to reduce its debt. The high debt stems from working capital facilities for the cash that the company needs to conduct its operation.

India1 Payments Limited is trying to move to an asset-light model with around 3,000 franchisees. The remaining ATMs are run on leased premises. This helps the company reduce its capital expenditure. The leases are typically five years long, and the company can leave the premises with a 30 day notice period. Its working capital requirements are also low as the company only needs to buy cash for its operations.

Key Risks

Working Capital Requirements

The company has extended working capital facilities to meet the cash requirements for ATMs. Increased interest rates or the non-availability of capital could adversely affect the company as the revenues are dependent on the number of transactions through the ATMs.

Regulated Environment

IPL operates in a highly regulated environment where it faces constant scrutiny. Even the interchange charges are set by the RBI, which prevents it from changing prices as required. The company is also required to meet expansion criteria set by the RBI, or it could have to pay penalties.

In the past, the company has paid penalties for not complying with the RBI’s norms. The white label ATM business has grown with regulatory and government support. If the support is withdrawn, the company could face adverse effects.

Cash Management Costs

Cash delivery costs form a major part of the company’s expenses, and with increasing fuel prices, margins might see a downward push.

Rise of Digital Payments

The rise of digital payments can adversely affect the ATM business as it is dependent on people using cash for transactions. While ATM withdrawals can incur fees after a certain limit, the unified payments interface offers free transactions while reducing risks of monetary loss, damage or theft.