Nov 9, 2025 Financial Tips

Should you subscribe to Pine Labs’ IPO?

The IPO of prominent fintech player Pine Labs is live and open for subscription until Tuesday. It is a combination of a fresh issue of shares worth ₹2,080 crore and an offer for sale (OFS) of ₹1,820 crore. The company is professionally run without promoter holding, and a clutch of investors, including those such as Peak XV Partners (Sequoia), Macritchie Investments (Temasek), PayPal and Mastercard, are set to offload a part of each of their stake in the OFS.

Pine Labs, founded in 1998, is a leading player in the digital payments space with a B2B business model. Its revenue model is dealt with in detail later. It operates in the lucrative, high growth fintech industry whose market size (by value of payments) is expected to double in the next four years from $1.4 trillion (₹117 lakh crore) as of FY25, as per a Redseer analysis in the RHP. Market size of only those sub-segments that are comparable to Pine Labs’ business model is considered here.

The company has showcased good growth in key revenue drivers such as number of merchants, transactions and gross transaction value (GTV), which has led to a 19 per cent CAGR in revenue between FY23 and FY25. It has been profitable at an adjusted EBITDA level (largely adjusted for ESOP cost) over FY23-25 and in Q1 FY26, but turned PAT positive only in Q1 FY26. However, this profitability can be attributed to a deferred tax credit.

At the upper band of the issue price, the issue is valued at an enterprise value (EV) to revenue multiple of 10.3x on a post-issue basis (based on FY25 revenue). The company does have levers that can drive its financial progress. However, considering the factors that investors need to mind and the downside risks if the company doesn’t execute well, such valuation does not present an attractive risk-reward proposition, in our view. Hence, we suggest investors avoid the IPO for now and wait for better entry opportunities while closely monitoring the company’s execution capabilities.

What it does

Pine Labs has two business segments: A - Digital infrastructure & transaction platform; and B - Issuing & acquiring platform. These contribute roughly 70 per cent and 30 per cent of consolidated revenue.

Under A, the company has three revenue models:

* Provision of in-store and online payments infrastructure for merchants. This largely includes earning a subscription revenue on DCPs (digital checkout points or point of sale devices) lent to merchants. In FY25, it earned about ₹380 per DCP per month on its 1.8 million DCPs as of March 31, 2025.

* Affordability, value-added services and transaction processing – where, as an illustration, the company brings financial institutions’ offerings such as no-cost EMI, credit card cashbacks, etc. to consumer durable brands, through its tech infrastructure, so that brands can offer them to consumers at the time of billing. Further, it also offers value-added services such as real-time approval, fraud checks and dynamic currency conversion before the transaction can go through. It earned a fee of about 39 bps on a GTV of roughly ₹2 lakh crore in FY25.

* FinTech infrastructure – which comprises an API-enabled platform which allows financial institutions to accept UPI payments in their own apps (for example, paying for MF SIPs on your broker’s app), onboard clients via eKYC, etc. Further, billers such as electricity discoms can use the platform to collect utility bills. Pine Labs earned ₹0.93 per transaction on a base of about 70 crore transactions in FY25.

Under B, the company enables merchants, brands and enterprises to create prepaid products such as gift cards, cashback/ refund vouchers, forex cards, etc. It even runs a marketplace to distribute such prepaid products. It earned a fee of roughly 130 bps on a GTV of about ₹52,000 crore in FY25.

What works

The company has a robust clientele of marquee names across financial institutions (top banks), large retailers ( D Mart, Trent), consumer durables ( LG, Samsung, Croma), e-commerce platforms ( Amazon, Myntra), etc.

Given its scalable business model, over FY23-25, as revenue grew at a CAGR of 19 per cent, fixed costs trended down, and adjusted EBITDA expanded at a CAGR of 35 per cent. Adjusted EBITDA margin has improved from 12.3 per cent in FY23 to 15.7 per cent in FY25 to 19.6 per cent in Q1 FY26. The management assesses that given its plans to discontinue deeply-discounted ESOPs, the reduction in ESOP cost should propel the company towards profitability.

Currently, Pine Labs has about ₹900 crore of debt and ₹532 crore out of the fresh issue proceeds is meant for reduction of debt. Interest cost was about 3.5 per cent of revenue in FY25. Lower interest expense should also support its path to profitability.

Pine Labs has earmarked ₹760 crore of IPO proceeds for growth expenditure such as ₹430 crore for purchase of about 5.7 lakh DCPs. Another ₹60 crore is meant for investment in subsidiaries in Singapore, Malaysia and the UAE. About 15 per cent of FY25 revenue is derived from outside India.

The rest of the proceeds - ₹728 crore - is meant for inorganic expansions and general corporate purposes. Combined, these provide good visibility on the direction of revenue.

Factors to mind

In theory, given its scalable model—where revenue is expected to outpace largely fixed costs—Pine Labs’ profitability should improve as it scales up. This in a way means acquiring more merchants, brands, financial institutions and expanding GTV, while keeping competition at bay in an already-crowded fintech industry.

India has gone through a massive digitalisation boom in the last few years, and Pine Labs has capitalised on the same, resulting in robust growth in key metrics. However, going forward, the pace of digitalisation may not be the same, though the industry section of the RHP paints rosy projections. If Pine Labs fails to add clients or new business lines at a healthy pace, its GTV growth will depend largely on that of existing clients — which, in turn, may only mirror India’s private consumption growth. Whether the company executes well would matter highly. Considering the IPO’s valuation, investors need to mind this and temper expectations. Also, the market is not without other rapidly-growing profitable companies available at valuations similar to that of Pine Labs.

Compared to larger global peers such as Adyen (see table), which has significantly higher margin and a longer track record of profitability at the net level, Pine Labs’ valuation does not appear cheap now.

Though strictly not comparable, stock performance of already listed peers – Paytm and Mobikwik, do not inspire confidence, as they have massively underperformed since listing. Stocks of both companies have seen a similar fate despite being valued at extremes at the time of IPO – Paytm at about 45x trailing revenue and Mobikwik about 2x. Though this is due to stock-specific factors, including regulatory risks for the sector, we mention it only for perspective — Pine Labs need not follow the same trajectory as these companies.

The auditors have noted that the audit trail (edit log) was not enabled in certain key accounting software, a point that does not strengthen the investment case.