How many times have we seen the country’s Finance Minister visiting a private company right before it is planning to file draft papers for its initial public offering (IPO)? Clearly, not many – or none?

But fintech unicorn Pine Labs, which is backed by marquee investors including Peak XV Partners, Temasek, PayPal and Mastercard, can boast of this rare honour. FM Nirmala Sitharaman not just visited the payments major’s office but also posted pictures about it on her social media accounts. One way to look at it is – this boosts startup sentiments in India, but at the same time the visit looks no less than ‘posturing.’

So, behind the optics, Pine Labs’ Road to its much-awaited IPO is not as smooth as its rather hunky-dory sounding draft red herring prospectus (DRHP), which it filed with the Securities and Exchange Board of India (SEBI) recently, that comprises of fresh issue of shares worth Rs 2,600 crore ($304 million) and an offer for sale (OFS) of up to 14.78 crore shares by existing backers.

In this deep-dive, The Head and Tale looks at a lot of plain facts stated in the DRHP, sometimes presented convolutedly, and put them in context to uncover the true nature of the business and hopefully temper the hype around its financial projections and valuations doing the rounds. After all, the crazy valuation expectations of Paytm when it went for its IPO in 2021 and the bloodbath it followed is still fresh on the minds of the people. Retail investors wouldn’t want history to repeat itself as the IPO market in India begins to look up and other fintech companies such as Groww and PhonePe also queue up for it.

While valuation figures doing the round for Pine Labs has been rather reasonable if not shocking, conversations with half a dozen industry insiders including former Pine Labs executives, reveal a company that is struggling to articulate a coherent growth narrative and a unified brand story.

Core – the PoS business 

No matter how much Pine Labs seeks to disassociate itself from being called a PoS (cost-heavy) business – and rename the terminals as ‘Digital check-out points’ in its DRHP – it cannot shed its PoS identity as the majority of the revenue still comes from this business (which has both hardware and software elements to it).

Before that let’s have a quick glimpse into Pine Labs’ history to help understand its PoS play.

In 1998, Rajul Garg and Tarun Upadhyay founded Pine Labs to develop card-based payment and loyalty solutions for the retail petroleum industry. Lokvir Kapoor – who worked at a smart card and terminals manufacturer Schlumberger, which focussed on oil and gas industry, joined as co-founder and investor, soon after. In the initial years, the company signed up with major petroleum companies, including Bharat Petroleum Corp Ltd (BPCL) and Indian Oil Corp Ltd (IOCL).

However, within two-three years of starting, both co-founders exited to start another company, GlobalLogic. Kapoor took over as Pine Labs CEO in 2004 after the exit of the co-founders, and led Pine Labs into mainstream payments and financial offerings for the merchant ecosystem. The company then made a strategic move into PoS services that enabled merchants to collect debit and credit card payments.

The company then went after banks like HDFC Bank, ICICI Bank and Axis Bank and started onboarding big merchants like Shoppers Stop, Big Bazaar etc. It then charged merchants and banks monthly/annual fees for the PoS solution and even charged merchants payment processing fees. Then in 2013, Pine Labs launched its affordability’ offering (popularly known as ‘Brand EMI’) – which gave it a solid edge over competitors, and it has maintained its monopoly in the space till date.

Now, let’s dive into its DRHP to see where it exactly stands on its PoS business. But before that we wanted to highlight how in the DRHP, Pine Labs has extensively used both ‘Pro Forma’ and ‘restated consolidated numbers’ to state its financials and business numbers.

A note on both ‘Pro Forma’ versus ‘restated consolidated numbers:

For instance, under its ‘Internal Risks’ section, the company said its total number of merchants stood at 9.15 lakh and its total DCPs (digital check-out points, best known as PoS terminals) was at 17 lakh as of December 2024.

The catch is, these numbers are based on ‘Pro Forma’ financial information, which is nothing but illustrative (hypothetical/assumption) numbers. The Pro Forma numbers are adjusted to show what the financials might have looked like had the merger between Pine Labs Singapore and Pine Labs (India) happened back in 2021 (which is the beginning of the reporting period in DRHP).

However, per the company’s ‘restated consolidated numbers’ mentioned under ‘Key Performance Indicators’ table, the company’s ‘merchant’ base stands at 2.73 lakh and total DCPs at 9 lakh as of December 2024. Interestingly, the number of merchants a year ago as of December 2023 remained almost unchanged at 2.7 lakh; and the number of DCPs at 8.3 lakh.

Please note that going forward all the numbers in this story are based on ‘restated consolidated numbers'.

While we are on the financials, let’s have a look at its revenue and profit numbers for the nine-month period ended December 2024 upfront. Pine Labs reported Rs 1,208 crore in operating revenue during the period helped by Rs 66 crore in 'other income'. Surprisingly, the company's one line item under 'other income' is a "related party service charges" of Rs 39 crore, which is up significantly from just Rs 85 lakh reported a year earlier. This kind of related income was not generated previously despite Pine Labs having made acquisitions much earlier. This likely helped the company show a Rs 26 crore profit during the period and EBITDA of Rs 271 crore as compared to a loss of Rs 152 crore and EBITDA of Rs 129 crore during the nine months ended December 2024.

An expert noted that when a company shows profit before a DRHP filing, it’s worth reviewing closely -- either it’s genuine improvement, or strategic accounting to boost investor confidence.

Now, back to PoS.

Pine Labs’ PoS business falls under ‘Digital Infrastructure and Transaction Platform’ – which also comprises online payment gateway, Brand EMI (affordability), and fintech infrastructure (through its acquisition of API infra firm Setu). Pine Labs earns more than 70% of its revenues from this segment.

The total gross transaction value (GTV) processed through all Pine Labs platforms was Rs 3,351 billion ($40.6 billion) in the nine months period ending December 31, 2024, against Rs 2,989.16 billion ($36 billion) during the same period last year. Of the total, the Digital Infrastructure and Transaction Platform’s GTV stood at Rs 3,106.83 billion ($37.6 billion) between April-December 2024, against Rs 2777.17 billion ($33.6 billion) reported a year earlier – accounting for more than 90% of the share.

According to the DRHP, its ‘Digital Infrastructure and Transaction Platform’ operating segment accounted for 70.67% of the total operating revenue, or Rs 853.8 crore during the nine months period ended December 31, 2024, compared to 67.82% (Rs 666 crore) reported during April-December 2023 period. Whereas in FY24, 67.49% (Rs 905 crore) of the total operating revenues came from this segment.

An important point to note is that Pine Labs is quite significantly reliant on its top 10 customers but their share of revenue contribution is seen falling. Its top 10 customers accounted for 31.02% (or Rs 375 crore) of Pine Labs revenues between April-December 2024. Whereas in FY24, the revenue share from top 10 customer was 35.24% at Rs 361 crore.

Notably, it’s contribution from its top customer had changed quite significantly, falling to 8.48% (or Rs 102 crore) of the total revenue during April-December 2024 period from 13.4% (Rs 131.6 crore) in the same period previous year. Basically, in absolute numbers, Pine Labs generated Rs 30 crore less from its top customer during April-December 2024 period on a year-on-year basis.

While not alarming, a tiny shrinking of its core PoS business is quite concerning when the company still plans to continue to rely on it for growth. In the DRHP, Pine Labs says that of the total Rs 2,600 crore it is looking to raise through its IPO, about Rs 430 crore will be used to procure digital check-out points – 2.75 lakh devices worth Rs 265 crore will be procured by Pine Labs and about 2.95 lakh devices worth Rs 165 crore will be procured by Pine Labs’ subsidiary Mosambee. The company claims for the nine months period ended December 31, 2024, the average monthly revenue was Rs 378.08 per DCP.

“This investment is aimed at enhancing our presence and deepening market penetration within the retail sector, longtail merchant segments, government sector and new market segments,” per the DRHP.

Challenges to PoS business?

One thing is quite clear that Pine Labs’ PoS business – though looks strong on the face of it – is struggling. This is because of two clear reasons:

“PoS does not have a future – especially when over 80% transactions are on UPI (Unified Payments Interface) – which is essentially a no-revenue business because of zero MDR,” a top official at a payments company said.

And, second reason is growing competition.

Even if Pine Labs is not losing market share in PoS, it is struggling to maintain its lead due to intense competition, several people said. The competition is not just from other fintechs like Paytm, Razorpay, PhonePe, Innoviti and MSwipe (which caters to the small merchant segment) – but also from the banks.

 A former Pine Labs official, who didn’t wish to be identified, said, “Pine Labs’ PoS business was doing quite well. However, in the last 1-2 years even if they are not losing share but finding it difficult to maintain its position because of competition from Razorpay, Paytm and even PhonePe.”

While Pine Labs dominates big retail, Razorpay (through Ezetap acquisition), which controls the mid-market segment, and Paytm, PhonePe are gradually chipping into Pine Labs domain. 

“Apart from the banks, the pace at which the other fintechs like Paytm, PhonePe and Ezetap have been graduating from bottom of the funnel to top is rapid,” the official quoted above claimed. “Also, it is unable to crack the mid-market and bottom merchant segment.”

Notably, Pine Labs, in 2020, attempted to tap the small merchant segment and even set up a large team – only to pause it within a year, several industry sources had then told this author. However, the company is slowly trying to tap this segment again with its newly launched three-in-one PoS, QR, Soundbox device – but it is yet to make any dent. 

“The (high) cost at which Pine Labs operates makes it too difficult for it to generate positive return on investment in the small merchant segment,” a senior payment official explained.

Besides, Pine Labs is slowly losing its share in the petrol pump segment, too. The company – which counts Bharat Petroleum (BPCL) among its top customers – lost a major PoS terminal deal to Fiserv.

“Pine Labs was dominant at BPCL petrol pumps. But last year, the petroleum company came up with an RFP (request for proposal) for some 80,000 PoS terminals – of which 75% of the contract went to Fiserv, and 25% to Pine Labs. This is expected to be a major setback for Pine Labs,” one of the sources said. Another source claimed that currently petrol pump segment is dominated by Fiserv. 

However, another source familiar with the matter said that Pine Labs was L2 (second lowest bidder) and bagged some major cities for the PoS deployment. The BPCL business has been growing in terms of volume for the fintech company, added the source.

On the other hand, the company is also facing challenges because of the major shift in the way banks operate. HDFC Bank, ICICI Bank, and Axis Bank are the top three financial institutions Pine Labs works with. It acts as a merchant acquirer on behalf of the banks, helping them onboard new merchants and provide them with payment solutions and affordability suite.

 “However, all the banks have started reducing their reliance on Pine Labs – as most of these banks are going aggressive with their own acquiring strategy” a senior payments industry executive shared.

 If industry sources are to be believed, HDFC Bank, which earlier worked majorly with Mosambee (a Pine Labs company), has started working with multiple players. ICICI Bank has also been aggressively going solo on its PoS play. [The Head and Tale exclusively reported about ICICI Bank’s merchant acquiring strategy; and how it ended more than a decade long partnership with Fiserv.]

“Wherever PoS is required, ICICI is shifting to its own standalone PoS model. In April-June quarter, some 60,000-70,000 of Pine Labs PoS deployed on behalf of ICICI Bank have been shaved off,” the top payments official claimed.

One of the industry sources explained that Pine Labs’ partnership with ICICI was through Firstdata (Fiserv) joint venture (JV) so ICICI’s plans to go solo does not have much bearing on Pine Labs’ business.

ICICI is, however, sticking with Pine Labs wherever merchants require EMI suite since Pine Labs has a monopoly in the Brand EMI (affordability) segment, the official further claimed.

Notably, despite Pine Labs’ move to shore up its affordability business and its string of acquisitions ( which are discussed later in the article) to add new technology and businesses the over 20-year old firm hasn’t been able to completely shake off its PoS identity.

“In our minds, Pine Labs is still a PoS company. In Pine Labs CEO and chairman Amrish Rau’s mind, it’s an affordability business,” said the senior executive at payments firm. "He’ll likely spin the narrative to say PoS is just the infrastructure – the real business is affordability (brand and bank EMIs).”

The narrative shift isn’t accidental as the fundamentals of the PoS business haven’t really changed. “You still have to pay rent. You still have to pay salaries. There’s no MDR to be made on majority of the payments. And your costs will only rise 10-15% every year. So, where’s the growth?,” the executive said.

To be fair, another payments executive noted, Amrish has read the writing on the wall.  “He likely knows that PoS is a margin-thin, commoditised business. And definitely not enough to carry a fintech unicorn dream,” stated the executive.

Can Pine Labs afford to bank on 'Affordability'

One of the biggest cash cows of Pine Labs is its Affordability segment, which earns processing fees from merchants, consumer brands and enterprises and financial institutions. According to another former Pine Labs executive, the company is taking Affordability beyond top metros. “We are actually partnering with lenders like HDFC Bank, Mahindra Finance and several banks and going deeper to tap the tier-2, tier-3 cities.”

 As per the company’s DRHP, Affordability, VAS and transaction processing solutions – which is the subset of ‘Digital Infrastructure and Transaction Platform’ – saw “substantial” growth with 42 credit partners and 369 brands and enterprise partnerships as of December 31, 2024. In the nine months period ended December 31, 2024, Pine Labs processed Rs 1,373.6 billion ($6.6 billion) in GTV for this subset, compared to Rs 956.78 billion ($11.60 billion) in April-December 2023 period.

Pine Labs – which has tied up with majority of the top brands – makes 20-50 bps (basis points) per Brand EMI transaction depending on the brand. For the nine months period ended December 31, 2024, the company claims to have earned an average revenue of approximately 39.47 bps.

Explaining why no one has been able to replicate the success of Pine Labs’ Brand EMI in India till date, the top official at a payments firm revealed several players tried doing it – but the brands don’t want Pine Labs’ replacement. “Since this is bank-led subvention model, brands are not losing anything, so they are happy. To move Pine Labs, you need these top banks as well as brands,” he added.

However, the market dynamics might change. According to the industry sources, ICICI Bank is also building its own EMI solution. In-fact, Razorpay – which brought in former Fiserv executive Kunal Gothivarekar to lead its offline payments business (Ezetap) – is also working on a Brand EMI solution.

“Now with the banks trying to build on their own, that is going to disrupt things for Pine Labs,” the senior payments company remarked.

Payment aggregation business

Other than PoS and affordability, the company’s online payment aggregation business is yet to take off. One of the first companies to secure the PA licence from The Reserve Bank of India (RBI) in 2021, Pine Labs has started showing some big brands as clients and it is “improving, but the revenue is not meaningful yet,” one of the former Pine Labs officials added.

The company’s DRHP also mentions that “the revenue from online payments is not significant in the nine months periods ended December 31, 2024 and December 31, 2023, and in fiscal year 2024.”

Similarly, the fintech infrastructure business (Setu) earned an average revenue of Rs 1.01 per transaction during April-December 2024. However, the total revenue remained negligible to even warrant a mention.

Businesses beyond PoS, thanks to acquisitions

The remaining 30% of Pine Labs’ business comes from gift and loyalty cards – tagged under ‘Issuing & Acquiring’ in the DRHP. This segment is mainly centered around Qwikcilver – an entity Pine Labs acquired in 2019 for $110 million.

The issuing and acquiring platform recorded Rs 244.89 billion ($2.96 billion) GTV in April-December 2024, compared to Rs 212 billion ($2.57 billion) reported a year earlier.

The revenue from this segment during the nine-month period stood at Rs 354 crore, compared to Rs 316 crore reported in April-December 2023 period. However, the revenue has remained flat at Rs 436 crore for the two consecutive fiscal years FY24 and FY23.

Qwikcilver (now known as Pine Labs Prepaid) operates in India, Southeast Asia, Australia and US; and through the Credit+ acquisition, the company offers services in India, Africa, and Southeast Asia.

However, the international business accounted for a mere 2.85% of Pine Labs’ total revenue in the nine-month period ended December 2024 compared to 2.57% in the same period in 2023. In FY24, the revenue from external customers accounted for just 2.59%.

“One of our growth strategies involves expanding our presence in new geographic regions and broadening our reach into untapped markets,” the company stated in its DRHP. Hence, it plans to use Rs 60 crore from the IPO proceeds for international expansion.

Apart from Qwikcilver, which is seen as its “shrewdest acquisition ever”, Pine Labs has made several other acquisitions over the past few years. Mosambee, QFix, Fave and Setu are some of its acquisitions.

While the company plans to continue with its acquisition opportunities in the future, former Pine Labs employees believe the company has “not been able to fully leverage the acquisitions.”

While the DRHP highlights ‘cross-selling’ opportunities for customer engagement, retention, and revenue growth with its acquired companies, sources tell a different story.

Pine Labs’ acquired companies till date work independently with their own heads, tech team and the structure is very fragmented. “There is no one singular story they are able to sell to all these merchants,” one of the former Pine Labs executives shared.

He further explained how they work in silos. For instance, Pine Labs’ online payment aggregation business requires KYC solutions for online merchants, but it hasn’t been able to tap into Setu’s identity verification solutions and account aggregator APIs. “Pine Labs has not leveraged their sister companies in the fullest form possible...all they do is pass on the leads so that the another team can follow up with the merchants” the executive remarked.

One of the biggest drawbacks of Pine Labs is that these teams don’t work in sync which could potentially make them lose prospective customers. “The PoS team has a huge PoS client database – who the online PA team can easily go and pitch to. It will be so much easier even when it comes to merchant agreement. But unfortunately, there is no lead sharing,” one of the former employees stated.

Another issue was that the company had a centralized engineering team for their homegrown online and offline payments businesses, which created a lot of challenges. The PoS team, or majority of the business at Pine Labs is led by Kush Mehra, whereas Tanya Naik heads the company’s online PA business.

However, a former executive noted that over the last one year, Pine Labs has slowly started decentralizing the team after realizing that the engineering team for online PA business needs to have a very different modus operandi.

Top executives exit

Pine Labs has already seen a string of top executive exits over the past year. Last year, its Chief Revenue Officer Navnit Nakra resigned. Ahead of its IPO filing in June, its Chief Financial Officer Marc Mathenz also quit and so did its Chief Growth Officer Mayur Mulani as reported by The Head and Tale to launch his own venture.

And the buzz is that Amrish Rau may also leave after the IPO.

“He isn’t the founder. He was brought in by Peak XV (then Sequoia Capital India) in 2020 with a clear brief – build a strong story, and take it public,” a venture capital executive shared. “He was always meant to be there for three years.”

Pine Labs had even filed confidential IPO papers in the US in 2022 but subsequently planned for India listing.

And just before filing in India, Rau made himself Chairman.

“He’s overstayed his original mission. And the fact that he promoted himself right before the IPO – that says something,” a venture investor quipped.

This isn’t his first innings leading a venture either. He built Firstdata, then Citrus, which was sold to PayU. Citrus doesn’t exist anymore.

However, few sources suggest that Rau may continue to lead Pine Labs even after the IPO.

There’s also chatter about what Pine Labs does after the IPO. One idea gaining ground is that consolidation will happen with one industry official believing that “Big fintechs will go clean up the market by buying out smaller payments players. From 10-12 players today, bring it down to 4-5 in three years.”

But will Amrish Rau be there to drive the consolidation as the question looms if he will stay on after listing the company.

Industry rooting for Pine Labs amid valuation concerns

If Pine Labs’ IPO doesn’t do well, it won’t just be Pine Labs that suffers. It’ll hurt all late-stage fintech companies trying to go public or raise funding, observe few industry officials. Since Paytm’s listing, late-stage capital has been few and far between so everyone’s waiting to see how Pine Labs fares.

But one thing the industry isn’t fully convinced about is the valuation Pine Labs is chasing – somewhere in the $5-6 billion range. Higher valuation ask is met with wariness and skepticism following the fiasco of Paytm’s IPO in 2021 despite being a consumer facing fintech company. Another fintech company MobiKwik’s IPO last year hasn’t reassured investor nerves either after its share prices have tumbled substantially since its listing and it registered a wider net loss in the March quarter.

“I’m quite bearish on Pine Labs,” said one of its own former employees. “They were India’s first real fintech. Unlike Paytm or Razorpay, they went from offline to online. And they were great offline. But they completely missed the online story. The vision isn’t very clear. Everyone hoped things would turn around in the last 2-3 years. Maybe some parts did. But overall? Not really.”

Another payments executive noted that post the Paytm IPO fiasco, Pine Labs’ $6 billion valuation looks like a tall ask. “Its IPO might still sail through, but the gap in scale between Pine Labs and Paytm is too obvious. And yet, both are being benchmarked the same way,” the executive added.

The executive further said that even companies like BillDesk and Infibeam, which barely get mentioned in startup circles, make more money than Razorpay or Pine Labs.

“There’s also a growing view that India’s PAs/PGs haven’t really figured out monetisation. They’ve gone all-in on tech-first, developer-first stories. But from a pure business (or ‘dhandha’) lens, the needle hasn’t moved much,” the executive added.

But, public memory in India is short, said a senior payments official. “The stock market is a casino – performance speaks. Amrish knows this. He’s all about the perception game. He’ll probably bring in a new CEO – a clean slate always buys you time,” the official added.

“If Pine Labs manages to list at $6 billion, that sets a new benchmark -- 35x forward earnings becomes a reality,” the official said.  “And since Pine Labs is a category leader, maybe give them a 10-15% premium. At the very least, that brings other payments companies to 25-30x,” added the official.

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Editing by Joseph Rai. 

Additional reporting by Joseph Rai and Muskan Singh