# 1. Financial Performance ## A. Key Figures * Revenue: ₹400 Cr Q2 FY'26 (-12%) · ₹853.5 Cr H1 FY'26 (-4%) * EBITDA: ₹61.6 Cr Q2 (+8%) · ₹123.3 Cr H1 (+12%) * **EBITDA Margin:** **15.4%** Q2 (+284 bps YoY, +180 bps QoQ) * PAT: ₹15.4 Cr Q2 (-27%) · ₹33.1 Cr H1 (-27%) * PBT: **₹21.2 Cr** Q2 (-18%) · **₹45.9 Cr** H1 (-9%) * Cash Profit: ₹46.8 Cr Q2 (+4%) ## B. Revenue & Growth * **Top-Line Pressure:** Revenue decline driven by deliberate exit from low-margin legacy transaction products, particularly remittances, amid systemic payment behavior shifts. * **Strategic Mix Shift:** Accelerating transition to high-margin annuity businesses, supported by CASA base expansion and renewal income, underpinning structural profitability improvement. * **Net Revenue Resilience:** Net revenue rose 4% YoY to ₹6 Cr in Q2 with margin expansion of 75%, reflecting pricing power and cost-adjusted efficiency. ## C. Margins & Profitability * **Record Margin Performance:** EBITDA margin reached an all-time high of 4%, with a 365-bps QoQ improvement in net revenue margin, driven by favorable product mix and cost discipline. * **Profitability Decoupled from Revenue:** Despite top-line contraction, margins expanded significantly as low-margin transaction revenue share fell to 20% and high-margin CASA rose to 40%. ## D. Cost Structure * **Cost Pressures Absorbed:** Cost-income ratio rose to 8% from 6% due to higher depreciation from prior capacity build-out and lower transaction income. * **Disciplined Expense Management:** Operating expenses up 5% YoY to ₹3 Cr (H1), reflecting inflation and compliance costs, but managed within strategic guardrails. * **Focus on Efficiency:** Management prioritizing profitability over scale, with ongoing strict cost control initiatives in place. ## E. Cash Flow & Earnings Quality * **High-Quality Earnings:** Cash profit grew 4% YoY to ₹8 Cr, signaling strong operating leverage and sustainable cash generation despite accounting P&L headwinds. * **Structural Fundamentals Intact:** Business resilience evident in mix-driven margin expansion, with CASA and renewal income enhancing long-term earnings durability. --- # 2. Deposit & Liability Base ## A. Key Figures * **Average Deposits:** **₹2,306 Cr** (+36% YoY) * CASA Cost of Funds: 1.9% in Q2 FY'26 * **Account Additions:** **9 Lakh** CASA accounts in the quarter · **1 Lakh** total liability accounts added in the quarter ## B. CASA Growth * **Robust Deposit Expansion:** Strong double-digit growth in average deposits, underpinned by granular, low-cost liabilities and sustained customer acquisition momentum. * **Scalable Acquisition Engine:** Record quarterly account additions reflect effective product segmentation and marketing, with early traction in premium and cost-optimized variants. ## C. Low-Cost Funding Mix * **Industry-Leading Efficiency:** Maintained one of the **most efficient liability structures** in the sector, with cost of funds held flat at a low 9%, enhancing margin resilience. * **P&L Impact from Incentive Loss:** Earnings pressured by absence of **INR 15–20 Cr** annual UPI incentives, which lapsed in the current fiscal year. ## D. Account Additions * **Diversified Product Traction:** New account mix shows strategic balance—**30–35% from premium-tier Shubh accounts**, **25% from low-fee Gati accounts**—supporting both fee income and inclusion goals. --- # 3. Transaction & Payment Volumes ## A. Key Figures * Digital Payment Volume: 35 Bn FY21 → >200 Bn FY25 → ~500 Bn est. FY29 (1.5 Bn/day) * **Digital Throughput Mix:** **55%** of total throughput * UPI Ecosystem Share: 1.45% of overall UPI transactions * Merchant Network: **2 million** total merchants (**+56,000 Q2**) ## B. UPI Throughput * **Short-Term Pressure, Long-Term Upside:** Digital payment volumes facing **regulatory and ecosystem-wide headwinds**, but structural growth trajectory remains intact amid massive projected expansion. * **Volume Normalization:** Recent **degrowth** partly due to deactivation of **~50 non-compliant merchants**, reflecting disciplined portfolio management rather than systemic decline. * **Monetization Constraints:** **P2P UPI remains unmonetizable**, while potential fees on **large-merchant P2M transactions** offer uncertain revenue upside. ## C. Merchant Network * **Sustained Expansion:** Franchise growth continues with **56,000 new quality merchants added in Q2**, reinforcing scale and distribution strength. ## D. Digital Payment Trends * **Business Model Shift:** Structural pivot from low-yield services (**remittance, micro ATM, AEPS**) to UPI-driven transaction banking improving **long-term margin sustainability** despite near-term volume compression. * **Limited Direct Monetization:** With **half the business on UPI**, revenue generation in payments remains constrained, emphasizing need for adjacent value-added services. --- # 4. Product & Segment Performance ## A. Key Figures * CASA Revenue: ₹159.4 Cr Q2 (+21% YoY) · ₹313.4 Cr H1 (+25% YoY) * Renewal Income: ₹62 Cr Q2 (+36% YoY) * **CASA Margin:** 54% Q2 · 53% H1 * CMS Revenue: ₹30.9 Cr Q2 (–24% YoY) · ₹65.3 Cr H1 (–19% YoY) * Legacy Transaction Revenue: ₹78.6 Cr Q2 (Remittance: ₹39.5 Cr, –61% YoY; Micro-ATM/AEPS: ₹39.1 Cr, –12% YoY) ## B. CASA & Renewal Income * **Core Profit Driver:** CASA emerged as the highest-margin product with **54% segment margin**, driving annuity income and funding stability, now contributing **40% of total revenue**—up from 29% YoY. * **Strong Customer Stickiness:** Renewal income posted robust double-digit growth, reflecting high retention and predictable revenue, supported by **2 crore merchant base** and expanding **CASA merchant participation (+25% QoQ)**. * **Product Tiering & Margin Leverage:** Gati accounts—comprising **4 lakh new additions** with **INR100 upfront fee**—are structurally higher-margin than Shubh accounts, offering **~20% higher margin contribution** within the CASA portfolio, contingent on balance accumulation and renewal success. * **Monetization Strategy:** UPI-driven deposit growth is being effectively monetized through CASA balances and renewals, forming the core of the company’s shift toward scalable, low-cost, recurring income. ## C. CMS Business * **Structural Pressures Persist:** CMS revenue declined sharply YoY due to lower volumes and **~2 bps take rate compression**, amid competitive intensity from non-banking players and MFI sector headwinds, though early signs of MFI normalization are emerging. * **Margin Resilience:** Despite revenue pressure, CMS maintained a **34% margin** in H1 through cost optimization and client retention, with the segment now classified as **stable but moderating**. ## D. Legacy Transaction Decline * **Accelerated Structural Shift:** Legacy transaction businesses (Remittance, micro-ATM, AEPS) now represent only **20% of total revenue** (down from ~32% YoY), with Remittance revenue collapsing **61% YoY**, confirming irreversible migration to digital/UPI-led models. * **Margin Profile Benefit:** While declining, the wind-down of low-margin transaction services has significantly improved the company’s overall profitability mix. --- # 5. Strategic Transition & Readiness ## A. Key Figures * **Loan Referrals:** **₹200 Cr** quarterly disbursements (pilot phase) * **Capex (H1 FY'26):** **₹70 Cr** invested in core platforms and digital scalability ## B. SFB License Status * **Final Approval Imminent:** SFB license application in final stages, with RBI queries resolved and decision expected within **the next couple of months**. * **Strategic Readiness:** Transition to SFB model leverages existing merchant and office network, with key roles and operational model defined; **Rishi Gupta and Ketan Merchant dedicating ~2 days/week** to execution. * **Profitability Catalyst:** SFB structure expected to **double current NIMs**, unlocking income from previously non-yielding investments amid **9% deposit costs** and compressed G-Sec yields. * **Partner Base Expansion:** Anticipates **10%–15% of active BC partners becoming exclusive**, forming a strong foundational network with potential for partner-led capital infusion. ## C. Core Banking Migration * **Migration on Track for Year-End:** Core banking system shift targeting completion by **end-December**, pending resolution of **FIS-related deliverables**; internal teams are ready. * **Strategic Build, Not Cost Save:** In-house platform aimed at **operational flexibility, capacity, and faster digital execution**, not cost reduction. * **Pilot Validation Underway:** Loan referral program and **multi-state secured lending pilots** testing sourcing models and geographic scalability for future SFB asset growth. * **Enhanced Data Utilization:** SFB integration will unlock **deeper UPI rail data insights**, improving customer and merchant analytics. ## D. Organizational Preparation * **TAM Strategy Execution:** Focus on disciplined rollout of **Transaction, Acquisition, Monetization (TAM)** framework to stabilize operations amid revenue moderation. * **AI Rollout Accelerating:** First phase of **AI product launching this quarter**, targeting operational efficiency and service innovation. --- # 6. Regulatory & Compliance Risks ## A. Merchant Onboarding * **Headline:** Deliberate moderation in transaction throughput due to enhanced regulatory scrutiny, with focus on merchant quality and compliance over volume growth. * **Headline:** Stricter onboarding standards—including increased documentation and physical verification—have slowed new merchant acquisition, positioning Fino above industry norms in control rigor. * **Headline:** Resumed onboarding of new merchants following temporary restrictions, indicating stabilization amid regulatory uncertainty. ## B. Law Enforcement Actions * **Headline:** Merchant deactivations driven by LEA concerns and chargeback issues, consistent with standard industry practices and not reflective of systemic onboarding failures. * **Headline:** Significant improvement in fraud controls, particularly around **mule accounts**, which were a key risk in Q1 but have since been mitigated through enhanced monitoring systems. ## C. Ecosystem Regulations * **Headline:** Digital payment revenue pressure stems from broad-based industry challenges—including regulatory changes related to RMG and rising fraud—not from concentration risk or loss of a major merchant. * **Headline:** Regulatory and enforcement headwinds are persistent and structural, requiring ongoing integration into strategic planning with no near-term relief expected. --- # 7. Guidance & Outlook ## A. Key Figures * Digital Payment Services Revenue: ₹169.8 Cr H1 FY'26 (+16%) · ₹146.4 Cr H1 prior year * **Digital Payment Services Margin:** 20% H1 FY'26 ## B. H2 Recovery Expectations * **Gradual Volume Recovery:** Transaction volumes expected to recover by end of Q3 FY'26, with sustained improvement in Q4, supported by completed portfolio recalibration and regulatory stabilization. * **H2 Profitability Improvement:** Earnings set to strengthen in H2 driven by digital throughput recovery, **CASA momentum**, and **cost optimization initiatives**. * **CMS Growth Rebound:** Cash Management Services to regain momentum through normalized MFI activity and expansion into **education and healthcare sectors**, with potential throughput breakthroughs ahead. ## C. New Product Launches * **Prepaid Product Live:** New prepaid instrument launched in August, expected to generate **₹1–2 Cr/month** in steady-state revenue. * **Payout Product Pending Clearance:** Upcoming payout solution, forecasted to deliver **₹3–5 Cr** in steady-state revenue, awaits RBI and compliance approvals. ## D. Profitability Projections * **Conservative Incentive Assumption:** Planning based on **zero UPI incentives**, positioning any future incentive income as a positive earnings surprise.