Pursuant to the reorganisation, Online Retail Trading (ORT) Business of IIFLS is being transferred to 5Paisa.
- The business being transferred is where customers are digital savvy and/ or millennials. They only need a platform to trade/ invest and not any further assistance.
- Customers needing personalised services and other products (e.g., AIF, PMS, Insurance) would continue to be serviced by IIFLS.
- ORT business of IIFLS reported a turnover of Rs 51.75 crore in FY 22, contributing 4.5% to it’s total turnover.
- In comparison, 5Paisa reported a turnover of Rs 298 crore during the same period. The transferred business would have increased this by 17.4%.
- In terms of the customers, the proposed transfer is expected to add 1.5 mn customers to 5Paisa’s existing customer base of 3.2 mn customers. This is an increase of almost 47%.
- Consideration for the transaction
- IIFLS shareholders will get 1 equity share of Rs 10 paid-up of 5paisa for every 50 equity shares of Rs 2 paid-up of IIFLS i.e., a swap ratio of 1:50
- It implies an increase in 5Paisa’s issued capital by 19.875%.
- Based on 5Paisa’s current mcap, the transaction means a valuation of Rs 204 cr
- 4x of trailing revenues
- Rs 1,360 for every acquired customer
The broad contours of the transaction seem fine.
However, I still don’t understand the logic of keeping both these businesses separate. There is bound to be overlap. Digital savvy customers may also need personalised services. They may trade/ invest on 5Paisa (due to low brokerage) but can invest into alternative assets through IIFLS.
I guess, IIFL group is keeping the discount brokerage separate to try capitalise based on Zerodha’s speculative valuations.
In due course, I would not be surprised if both are merged together.