Pine Labs IPO: Indian Fintech's New Era Of Competition

Pine Labs has been on the IPO trail for what feels like an eternity. And now it’s finally about to press the big red button. In all likelihood, there’s no turning back now for the Peak XV Partners-backed company.

Pine Labs has gone through various narratives when it comes to the IPO. At one point, a US listing was said to be on the cards but that never happened. This was when India was not considered a great destination for public listings.

But in the past few years, this notion has changed, and Pine Labs reverse flipped from Singapore and redomiciled in India to get set for the IPO. This time, it seems the company is finally ready. This is the coming-of-age moment for one of India’s original fintech pioneers, and it comes at a time when competitive intensity is at an all-time high in the Indian fintech space.

Every major startup and even some not so major ones have launched overlapping models and Pine Labs is not immune to these pressures.

The draft papers released this week lay out Pine Labs’ big plan: a fresh issue of shares worth a substantial INR 2,600 Cr, coupled with an offer-for-sale (OFS) component of over 14.78 Cr shares by its existing backers.

This is the moment the Noida-based company, founded way back in 1998, has been building towards. After years of navigating the treacherous currents of Indian fintech and regulations and adding more and more pieces to its point-of-sale business, today Pine Labs is a full-stack merchant commerce platform — handling everything from customer acquisition to retention to payments and financial services.

But in a market defined by the blitzscaling antics of UPI giants, Pine Labs seems like a slow mover. Will this find the right backing from the public markets? And despite its new-found profitability and diversified arsenal, can Pine Labs prove that it is ready to compete with other IPO-bound giants like PhonePe, Cashfree, Razorpay, Paytm, BharatPe and CRED to win over Indian merchants?

Investors Set To Cash Out

When it comes to Indian startup IPOs, there’s always a close eye on the existing investors. From Peak XV to Mastercard to PayPal, the public listing is bringing partial exits for some of the biggest names in fintech investing.

Peak XV is set to offload around 3.9 Cr shares from its huge 20.35% stake, a long-held bet that is now maturing. Private equity firm Actis and Singapore’s Temasek are selling 1.49 Cr and 1.48 Cr shares, respectively.

Strategic fintech investors like Mastercard and PayPal, who have been instrumental in bringing Pine Labs to more merchants are offloading 1 Cr and 1.15 Cr shares. Besides this, CEO Amrish Rau plans to sell 18.15 Lakh shares of the company within three months of the listing of the company’s shares on the stock exchanges.

The company, last valued at $5 Bn, is reportedly targeting a valuation between $6 Bn and $8 Bn. The funds from the fresh issue are earmarked for a notably prudent plan: INR 870 Cr will go towards slashing debt — Pine Labs has over INR 600 Cr in borrowings as of December 2024.

Besides this, INR 760 Cr to beef up its tech infrastructure, and a modest INR 60 Cr for overseas expansion. However, the company also added in the DRHP that international expansion is risky and cost-intensive, so we presume that the investment would be to make existing markets more robust. Pine Labs has operations in the Middle East and Southeast Asia.

Its international expansion has come on the back of acquisitions, and this has also steered the company into the direction of full stack solutions for merchants. A lot of this is also due to the change in the leadership at Pine Labs at a crucial juncture.

Pine Labs Hits Diversification Switch

When Amrish Rau took the helm as CEO in March 2020 from founder Lokvir Kapoor, Pine Labs was already over two decades old. It was time for a new guard, and it’s to Rau’s credit that he managed to steer the company out of Covid and into a new era beyond the PoS segment.

As per the DRHP revelations, the 2021 acquisition of Fave was the turning point. It gave Pine Labs a foothold in Southeast Asia and allowed it to offer some consumer-focussed services such as discounts and rewards.

Then in 2022, Pine Labs acquired fintech API company Setu and another PoS player Mosambee — the latter bringing some BNPL features to Pine Labs’ merchant network. The Setu deal enabled the company to venture into Plural through which it offers online payments infrastructure. It also acquired Qwikcilver to enter the PPI and prepaid cards space, which is another major revenue boost for the company, allowing it to stretch beyond merchant payments.

While the legacy digital infrastructure and transaction platform i.e the PoS business still contributes the lion’s share to revenue at around 70%, the rest comes from gift cards, loyalty programs and more.

Diversification has been crucial to Pine Labs’ turnaround story from losses to profits. For the nine months ending December 2024, Pine Labs clocked a slim net profit of INR 26.1 Cr, but this is a stark contrast to the INR 151.6 Cr loss in the same period last year.

Upon closer inspection, the jump to profitability is also a result of lower ESOP expenses in FY25, which will undoubtedly grow as the company completes its public listing. So the question is which areas will Pine Labs venture into next and whether it will acquire more companies to do so, like in the past.

A New Era For Indian Fintech

One area where it definitely needs to catch up is the payments gateway and aggregator business where Razorpay, Cashfree, PhonePe, Paytm, PayU and others have a big lead.

Incidentally, Pine Labs CEO Rau was the PayU India chief for over three years, after the Prosus-backed company acquired his startup Citrus Pay in 2016 for $150 Mn. Incidentally, Rau won’t sell any of his stake as part of the IPO. He held 2.5 Cr shares or a 2.35% stake in the company at the time of filing the DRHP.

Today, the battle for the Indian merchant is a multi-front war — PoS is one side of the coin, while digital payments is the other. One could argue that with their scale on the digital front, the likes of Razorpay, PhonePe, Cashfree, BharatPe, Paytm and others can more easily venture into the physical payment channels. Of course, the same goes for Pine Labs — it can acquire users for digital payments through its PoS network, but the point is that competition is widespread and one cannot guarantee a win.

Success in the long term hinges on capitalising on the existing user base, and hoping that there is no price war which would force players into consolidation.

We have seen some signs of a cut-throat battle in the payments space, as we touched upon in our coverage of RazorPay’s majority stake acquisition in UPI payments app POP.

Among UPI giants, the most notable competition is PhonePe, which is leveraging its gargantuan 500 Mn+ user base and 20 Mn-strong merchant base for full-scale attack. PayU, Innoviti, and Mswipe are some other startups in the same space, but they have relatively low penetration in the PoS space as compared to Pine Labs.

The most profound challenge, however, is the very nature of the Indian payments landscape, which is built around the dominance of free UPI. The zero MDR regime has fundamentally reshaped behaviour. Why would a small shopkeeper pay for a terminal when customers can scan a QR code for free? This is the conundrum that Pine Labs is stuck in.

But as we have seen, it’s not shying away from diversification. One could even say that Rau had the foresight to see the UPI disruption in 2021 when Pine Labs acquired Fave and then Setu and Mosambee. It needed to go beyond PoS and has done that.

The next phase of the strategy will be to capture the merchants that can pay a premium for a more sophisticated suite of services built around PoS — EMI at checkout, local loyalty programmes, access to analytics and going beyond a simple UPI QR code by offering value.

The competitive pressure is immense because no moat lasts for long in this space. All the innovation is out there for everyone to see and AI and ML have erased the tech advantage any one company may have over the other. It’s a super interesting time to see the fintech ecosystem.

Essentially, B2B and B2C models are colliding and there is electricity in the air around the future of fintech giants lining up for the public markets. Pine Labs is the first to take the bow.

Markets Watch: New Issues, Financials & More

• DroneAcharya’s Delays: BSE SME listed DroneAcharya has been slapped with a fine of INR 1.3 Lakh by the exchange for the delay in the submission of its financial results for the last two quarters of FY25 which the company claims is due to snags in its audit
• Ola Electric’s New Low: The EV maker hit a new all-time low on the stock market this past week as shares dipped to INR 43 before finishing the week just over
• Meesho’s IPO Plans Solidify:Ecommerce giant Meesho’s board has approved raising up to INR 4,250 Cr (around $500 Mn) via a fresh issue in its IPO, which will also consist of an offer for sale (OFS), allowing existing investors to offload shares

• Wakefit DRHP Drops: Furniture company Wakefit filed its DRHP this past week and it shows the company reported a net loss of INR 8.8 Cr in the first nine months of FY25, while revenue from operations stood at INR 971 Cr
• ShadowFax Incoming: Nearly three months after converting into a public entity, logistics major ShadowFax is now reportedly planning to file its draft IPO papers via the confidential route in the next few weeks

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