Brief Summary
This YouTube video by Sunday Investing discusses the upcoming IPO of Groww, a Bangalore-based fintech company. The video provides an overview of Groww's business model, financials, strengths, weaknesses, and potential risks associated with the IPO. The speakers share their analysis and recommendations, primarily focusing on a short-term investment strategy due to valuation concerns.
- Groww's business model, financials, strengths, and weaknesses are discussed.
- The IPO is analyzed, focusing on potential risks and returns.
- A short-term investment strategy is recommended due to valuation concerns.
Opening Remarks
The video begins with a welcome to the viewers and an introduction to the topic: the Groww IPO. The hosts clarify that they are not registered research analysts and their opinions should not be taken as financial advice. Viewers are urged to make decisions based on their own conviction and understanding of their personal financial situation. The hosts also mention upcoming "Know Your Promoter" interviews and an "IPO in a Minute" series on their YouTube channel and Instagram, encouraging viewers to follow them for more updates.
Groww IPO (Mainboard)
Groww, also known as Billion Brains Garage Ventures, is a Bangalore-based fintech company founded in 2017. It offers a platform for investing in mutual funds, stocks, F&O, ETFs, IPOs, digital gold, and US stocks. The IPO aims to raise ₹6,600 crore, including a fresh issue component. The company's valuation is around ₹61,000 crore. Groww's revenue is ₹3,902 crore and PAT is ₹47 crore. The IPO's lead managers include JP Morgan, Citi, Axis, and Motilal Oswal.
One of the speakers provides a detailed overview of Groww, highlighting its founding by ex-Flipkart employees in 2016 and its evolution from offering mutual funds in 2017 to broking in 2020. By 2025, Groww had incorporated loan against security and MTF book within their application. Groww operates on a zero-commission model as a discount broker, offering a wide range of investment options including stocks, FNO, bonds, mutual funds, gold, US stocks, and MTF. Currently, 85% of Groww's revenue comes from broking fees and interest, 8-9% from lending, and the remainder from wealth and AMC verticals.
The speaker notes several positives, including a nearly 50% growth in revenue base and a high percentage (45%) of first-time users on the platform. Groww has approximately 18 million users, holding about 26-27% of the user base as per NSE records, with a CAGR of 55-56% from FY22 to Q1 FY26. The customer base holds securities worth over ₹2.6 lakh crores. Groww contributes 24% to the overall exchange turnover in retail average daily turnover. The user interface is user-friendly, and they cover 99% of pin codes across India. Unlike Zerodha, Groww invests significantly in advertising, resulting in 80-85% customer acquisition with a low acquisition cost of ₹200-300. This has led to a reduction in customer service costs and a customer retention rate of 78% over three years.
The average revenue per user has increased by 50% year-on-year. Groww also has a UPI feature, generating charges on deposits, with 78% of customer charges occurring via this channel. Groww has made several acquisitions, including Groww Credit for personal loans, Fisdom to attract affluent users, India Bulls AMC for cross-selling mutual fund schemes (AUM around ₹2,500 CR as of Q1), and Finn Wizard for insurance, PMS, and tax filing services (asset base of around ₹10,200 CR). These acquisitions aim to increase the average revenue per user by 10-15% in the coming years.
In FY23, Groww had revenues of ₹1,142 CR with a 35% EBITDA and similar PAT. In FY24, revenues grew to ₹2,600 CR, but there was a loss of ₹800 CR due to the merger of their US subsidiary and one-time tax expenses and ESOP expenses. Adjusting for these, the profit would be around ₹500 CR with a 20% PAT margin. In FY25, revenues grew to ₹3,902 CR with a 60% EBITDA and a PAT near 47%. Q1 FY26 recorded revenues of ₹900 CR, with EBITDA at 53% and PAT near ₹380 CR. The company aims for over ₹1,000 CR of PAT in the next two to three years and plans to break even their AMC vertical in three to four years.
The speaker also discusses risks, including the heavily regulated nature of the broking business, potential impacts from SEBI and exchange guidelines, and the high reliance on broking revenue (85%). Changes in F&O turnover can significantly impact revenues and profitability. The loan against security business carries the risk of unsecured loans and potential NPAs. The operating cash flow is currently negative due to recent acquisitions. Competition from other brokers and full-fledged brokers ramping up their services also poses a risk.
The IPO is largely an OFS with only 16% fresh issue. The funds from the fresh issue will be used for cloud infrastructure, marketing, investment in the NBFC subsidiary, MTF funding, and potential acquisitions. The IPO price is near 33 times FY25 earnings and 15-16 times price to sales. On a price-to-book multiple, it's near 10-11 times. Peers like Angel One and Motilal Oswal are trading at lower multiples. Anchor investors include the Government of Singapore, Nepon SBI, and Abu Dhabi Investment. Despite talks, Sequoia Capital (now Peak XV Partners) did not participate in the anchor book, even though they are making around 50 times on their OFS sale.
The speaker concludes that Groww has strong brand recall, customer acquisition, and stickiness, surpassing Zerodha in customer base. The company has also offered ESOPs to over 70% of its employees to reduce attrition. However, the valuation is considered expensive and could have been 20% cheaper. The speaker recommends a short-term investment strategy, similar to Lens card, based on listing gains and liquidity. For long-term investors, waiting for the issue to fall below 10 times price to sales on a forward basis would be a more appropriate entry point. The inclusion of a fresh issue, despite the FY24 loss, and the 10% retail quota suggest that valuations could have been higher otherwise.
Sachin adds that the impact of regulatory changes, such as weekly expiry changes, has already been factored into the Q1 revenues, which have decreased by 10-11% year-on-year. He suggests valuing Groww like other new tech companies using price to sales as a better metric. He believes a valuation of ₹42,000 to ₹45,000 crore would have been more appropriate.
Closing Remarks
The hosts summarize their views on the Groww IPO, emphasizing a short-term investment approach. They acknowledge the current market volatility and advise caution. They also mention upcoming IPOs and interviews in the following week, including Pine Labs, Teneco Clean Energy, and several SME IPOs. They express gratitude to their viewers for their support and promise to continue providing unbiased views and learning together.
