Pine Labs rakes in money, but profitability a concern

ET Intelligence Group: Pine Labs, a digital payment services provider to merchants, plans to raise upto ₹2,080 crore through fresh equity to strengthen cloud infrastructure and repay debt and upto ₹1,819 crore through an offer for sale (OFS). The OFS will be carried out by 10 existing investors including Peak XV, Paypal, and MasterCard Asia.

The company has steadily grown its revenue, transactions and Ebitda margin in recent years but continues to post losses mainly due to non-operating expenses such as ESOP costs. Given these factors, the IPO is suitable for long-term investors with a higher risk appetite.

BUSINESSThe company serves more than 9.9 lakh merchants, 716 brands, and 177 financial institutions across sectors from retail to fintech and government entities. Pine Labs earns revenue mainly through subscription and processing fees linked to the number or value of transactions across its platforms. Total number of transactions processed across all Pine Labs products increased to 5.7 billion in FY25 from 2.6 billion in FY23.

The company’s platform gross transaction value (GTV), which is the total transaction value processed through all its platforms, more than doubled to ₹114. lakh crore in FY25 from ₹44 lakh crore in FY23. The share of revenue from international markets rose to 14.9% in FY25 from 8.5% in FY23, highlighting the company’s growing global footprint.

FINANCIALSRevenue from operations rose at an annual rate of 19% to ₹2,274.3 crore in FY25 from ₹1,597.7 crore in FY23. The company has not been able to generate profit in the past three years. Its net losses narrowed to ₹145.5 crore in FY25 from ₹341.9 crore in FY24. It incurred an ESOP expense of ₹114.8 crore, which significantly hit its profitability. However, the company has posted ₹4.8 crore net profit in Q1FY25. The adjusted operating margin before depreciation and amortisation (Ebitda margin) increased to 15.7% in FY25 from 12% in FY23, indicating improved cost control and operational leverage. Though the company does not have a direct listed peer, One 97 Communications, which runs operations under Paytm brand and has a payment platform reported operating loss and Zaggle Prepaid Ocean Services, which offers prepaid solutions had an Ebitda margin of 9.5% in FY25.VALUATIONSince the company reported a net loss in FY25, the price-to-earnings multiple cannot be used. It is seeking a price-to-sales multiple of 11.2. One 97 and Zaggle trade at a P/S of 11.7 and 3.7 respectively.