Apollo Finvest - Scalable business run by motivated promoters

harshu0618 · March 8, 2021, 3:46pm

Background: Apollo Finvest is a listed NBFC run by Mr. Mikhil Innani. Mikhil is a 2nd gen entrepreneur who has earlier headed consumer products and growth at Hotstar and CouponDunia, which was acquired by Times Internet. Prior to working at Hotstar, Mikhil has co-founded PharmEasy, an online medicine delivery startup.
Post the acquisition of Hotstar in which he has played an active role in scaling the monthly active users from 10+ million to 300+ million, Mikhil has decided to venture on his own through family owned listed entity Apollo Finvest.

Business: Apollo Finvest essentially is a back-end platform for consumer facing digital lending startups. Digital lending companies and their unique underwriting can be onboarded into Apollo’s platform and start disbursing loans in a few hours with compliance being taken care by Apollo owing to its NBFC license.
The features currently include compliance, basic underwriting and loan management system (which itself has customized underwriting rules which can be added/modified by lenders based on their policy).
The company’s LMS product Sonic is explained in detail in this blog post

The company is currently working with 30+ fintechs who use Apollo’s platform to provide several products including consumer loans, pay later loans, MSME loans etc.

While I do not understand tech, basic secondary research about digital lending opportunity, the potential opportunities for businesses unbundling digital lending value chain to create unique business models is immense. Attaching some of the reports elucidating the same.
india_fintech_guide.pdf (3.9 MB)
India-Fintech-Report-2021_-The-Digital-Fifth.pdf (3.1 MB)

Financials: The company doesn’t have much to show in terms of financials owing to its short history in its new avatar. However, it is pleasing to see a profitably growing business with sales majorly led by fee business. YTDFY21 hasn’t been kind to the business owing to very high delinquencies for digital lending startups in 2020. The company’s revenue is linked to the loan book growth of its customers making customer selection a key factor for sustainability of numbers.
Having said that given the size of the business currently and lack of ton of public information, its the promoters who would be key differentiating factors in making this business scalable.

Promoters: I have had a one on one conversation with the promoters ( a very brief call so couldn’t really ask all the questions I had) and while the judgments can be subjective, I felt the promoter is a driven, focused individual unwilling to be flashy but at the same time ambitious enough to aim big.

I will briefly describe the thought process of the promoter during the call below

Identifying winning fintechs is key in scaling this type of business. Rather than onboarding every random well-funded startup, key is to identify businesses that have unfair advantages leading to scaling up of their loan book
Have a look at this link that might give some insights

Company is currently focusing only on digital lending ecosystem but has ability to develop products for other fintech areas including insurance aggregators, online investment platforms, payment companies etc
Company is currently looking at onboarding some of the biggest tech companies in India including a large e-commerce company and a large food delivery company
The promoters don’t mind an equity dilution in the future in case they would want to take up loans on their books. (I didn’t really feel this as a positive though)

Key Questions to ponder: Given the stage the company currently is in, over analyzing financials or valuation doesn’t add too much of value in my opinion. What matters more is the execution and sequential improvement in topline and bottomline once the market environment for digital consumer lending revives. In addition, the following key issues need to be understood better

Sustainability of revenues/selection of customers: Apollo Finvest as a business claims it doesn’t really have any competitive advantage in lending space (refer FY20 annual report which clearly explains the journey and thought process of the promoters). Hence, what makes Apollo Finvest think that the fintechs with which it partners have an advantage in lending that can give a sustainable revenue to Apollo Finvest? As a corollary, how does Apollo Finvest choose its customers so as to fool proof its revenues and profits?
Value proposition: How does Apollo Finvest as a business deal with the possibility of Fintechs deciding to go their own way once they achieve scale? In other words, what exactly is the value proposition that Apollo Finvest offer its customers across the life cycle of its customers (seed stage, early stage, growth stage and mature stage)
Talent: one of the major constraints would be “People” for a tech company like Apollo with limited resources (as of now) to attract the best talent. How does Apollo Finvest plan to manage the same?

There are several other micro questions that are relevant and important for such a business but I feel if the company is able to get these major issues right, it would be able to scale-up profitably.

Request fellow members of the forum to share insights on the business and other KPI’s for such a business.

Disclosure: Invested at CMP

Chins · March 8, 2021, 10:37pm

Thanks for starting this thread, I was studying this company over the week and the 2020 annual report has to be the most bizarre annual report I’ve ever read, given the strange emojis, and the writing style feels more like a blog than an annual report. Notwithstanding, it was refreshing to see a company list out its journey and targets given the lack of financial statement history.

In your conversation with the promoter, did they mention how their NBFC license specifically helps them with clients? I’m unable to get an answer beyond regulatory hurdles.

This seems like a very similar company to Intellect Design, except focused on newer digital fintech companies rather than commercial banks. It’s still early days in knowing how the newer players are going to emerge post covid, especially with new government incentives for fintech players. Therefore, it’s very interesting that they’re looking at onboarding e-commerce and food delivery players. Did they give you anymore details on the stage that these talks have reached?

Disclosure: Have a small position, studying the space.

harshu0618 · March 9, 2021, 3:54am

Yes. As far as I understand, the NBFC license doesn’t offer much beyond regulatory compliance. Hence it becomes extremely important for this company to be able to provide enough value to customers even after them achieving scale so that they can be retained.

While the MD hasn’t specifically mentioned the stage of these talks, he was visibly excited by the opportunity with food delivery company that might bear fruits in the second half of 2021.

sougataG · March 9, 2021, 5:15am

Thanks for initiating the thread. Have been tracking this company from start of the year and initiated very small tracking position as well. As @Chins the annual report was indeed bizarre or refreshing depending on the POV, very much like their blogpost on substack. Listened to Mikhil Innani’s podcast where he talks about his journey from Coupon Duniya, Pharmeasy to Hotstar and how he scaled the Hotstar tech team (Episode XIII - Mikhil Innani, Managing Director at Apollo Finvest - #DamaniTalks | Podcast on Spotify). While the vision is great, all depends on the execution.

AmitContrarian · March 9, 2021, 7:13am

On NBFC license the only benefit it offers is if some new fintech wants to experiment doesn’t have to wait though all the approval processes to get NBFC licenses by just partnering with Apollo finvest, Apollo finvest takes care of the regulatory stuff for them. Apart from that nothing else, Founder is very clear about not doing any NBFC business themselves.

All i know is today they have some 15-20 customers including the like of FlipKart, but would like to know who else ? ( based on my reading / listening to his talks).

How they contract the revenue ? Are the software licensed & there is additional fee if their customers grow ?

AmitContrarian · March 9, 2021, 7:28am

Do their revenue increase with increase in loan book for their customer ? meaning fee is x % of AUM ?

harshu0618 · March 9, 2021, 7:51am

Yes this was specifically asked and the reply was affirmative

suru27 · March 15, 2021, 6:52pm

Posted some analysis with lots of questions. If anyone can provide perspectives, would be glad.

harshil · March 16, 2021, 4:18am

my understanding of Apollo is as below

they have a software for Fintech operations this is called SONIC and this covers most of Fintech operations
they provide NBFC service as in they lend to Fintech clients against guarantee from fintech. i am not sure how much of the loan is covered by the guarantee… the recent financial suggest that they have taken a hit on the loans and this is in line with what has happened in the market place. the issue is that they use INDAS provisions which allow them to mention loan book adjusted for provisions therefore it is difficult to determine the size of thier book and the loss … however i feel thier loan book is in the range of 125 crs…
on the software side they compete with likes of nucleues, newgen and others… on the NBFC side once a fintech becomes big they may seek a NBFC license… so i am not sure how they can scale.
the promoter has a great track record and it is interesting that he is using a listed vehicle owned by his family rather than raising capital from PE investors (which he should be able to raise) it is worth tracking for sure… but difficult to bet on at this point in time…

harshil · March 17, 2021, 6:12am

there is a KEN story today on Fintech as a Services provided by Chinese companies… they provide the full stack like Apollo… if and when new GDPR regulations are implemented in India Apollo will be a huge beneficiary …

Harsh04 · March 18, 2021, 6:52pm

could someone clarify what is the “deposits” in balance sheet and where is it coming from ?

Vineetjain111 · June 8, 2021, 11:32am

Came across this company only yesterday, and it seems very interesting to me.

This is their investor presentation from their website. Has a lot of ineresting information. Pasting the slides on the moat as articulated bu the company here. It talks about how they have access to data across the fintechs on thei rplatform which helps them create a risk algorithm than the fintechs would be able to create themselves. I guess this should help the fintech in underwiting, as well as Apollo FInvest in choosing its customer. And with access to this data, they are able to raise capital and good rates and offer it to fintechs at good rates as well. Looks logical to me.

A couple of other interesting updates:

An ED official apparently received a bribe from Apollo Finvest to defreeze their bank account. The article doesn;t give too many details, but the bribery allegations aside, why were these accounts frozen in the first place? Not able to find more infmormaiton on this.
https://telanganatoday.com/ed-officer-booked-for-graft-in-loan-app-case
Kunal Bajaj, Head of Capital Markets for Blume Ventures (and former MD India Equities for Jefferies) has invested in Apollo Finvest last week in personal capacity.

image653×795 113 KB

In all honesty, I don’t understand the fintech space very well. But prima facie this seems like an asset light, scalable model in an industry that has massive tailwinds. I have taken a tracking position today and will try to learn more before adding to it.

vaedermacher · June 8, 2021, 10:22pm

I will caution members investing in B2B fintech balance sheet providers - i.e. folks providing their balance sheets for others to underwrite credit products to. This is a commodity product that cannot scale without deep access to cheap capital, and will ultimately be eaten by the largest NBFC and bank balance sheets. Smaller players will play the role of port of first call for new entrants or as experimental partners for new / risky products , which if they work will be shifted to and grown on a more scalable , cheaper balance sheet. For a micro cap like this , the road to scale and cheaper capital is v long, and will require substantial equity investment of thousands or crores. One may validate this by checking the COF of any NBFC with less than 1000 cr of paid up capital. Expect the larger, more innovation friendly banks and NBFCs to take this market - ex Muthoot, IDFC, IIFL, Axis etc

Vineetjain111 · June 11, 2021, 6:53pm

I have taken a tracking position. Will add to it once there is evidence that the business is scaling. The size of the opportunity seems way too large to give a miss. The model looks scalable to me, it will come down to execution. The track record of the MD suggests to me that he will be able to raise funds without much difficulty, so have to be prepared for equity dilution at some stage.

I think saying that tech friendly large NBFCs and Banks will take the market is simplistic - thats just not how cutting edge tech works. These institutions are just not as agile, and frankly I don’t think many of them take digital platform lending seriously yet. Unicorns like PayTM were built in spite of large banks having the ability to create wallets - but they didn’t.

deevee · June 12, 2021, 8:16am

Hi all

I have been trying to understand what is the core proposition of this company. I am a tad confused with the story around ‘we are an NBFC’ to ‘we are the AWS of lending’. Some questions which I had in mind. Please add on. Tia.

Is this a company which is giving out loans?
Yes it does that. 5 years ago ending FY17 they earned 12 lakhs worth of interest on loans which in FY20 was 7 Crs. Total interest income in FY21 was 4.6Crs.

Is loan disbursal the primary business?
No I don’t think so. In fact I believe the NBFC license perhaps generates less than 25% of the total income of the company (~4.6Crs interest income on a total of ~16Crs of income, similar ratio in FY20 also).

Where does it generate revenue from?
2/3rds of it revenue in FY21 was generated from Fee & Commission. This component contributed 73% of the operating income in FY20.

What is this Fee & Commission Income?
I don’t know. But my guess is this is the income generated from their software Sonic. Other income heads such as dividend (of their investments), rental income, interest on bank deposit, interest from investments, net gain from fair value changes etc. are explicitly called out.

Was the company always into being an AWS for lending?
No. Only from FY20 I believe this software generated any income. ~21 Crs income in FY20 which dropped to 10 Crs income in FY20. FY19 and prior to that there is negligible contribution on this income head. Plus the founders have been very vocal about their application. They also have a recorded demo on YouTube of what all the application can do. Proportionately the fee and commission expense also fell 50% from FY20 to FY21. But why would this fall if this a software product (FY21 ~8Crs, FY20 ~15Crs, FY19 0.5Crs). I don’t know.

What was its primary business before FY19 or so then?
This is what they say in their old annual reports “The Company’s main business is investment in shares / debentures, immovable properties, equity mutual funds, and debt mutual funds giving loans etc. All the activities of the Company are related to its main business. As such there are no separate reportable segments.”. If we look carefully in the schedules of FY18 AR we see they did not spend a single rupee to access CIBIL database usage. So I wonder they even gave out a single loan in that year. Cash flow from loans was a positive 7.2Crs in FY21 whereas it was an outflow of 13Crs in FY20 and 0.9 Crs in FY19.

So should we value or analyze this business as an NBFC?
Personally I think no. The focus of the management (from their blogs and tweets and AR) is that of selling their Sonic application. NBFC is perhaps used as a ‘wrapper’ to create a barrier to entry in our minds. I don’t think there is any limitation for any non NBFC license holder to make an application such as Sonic.

What is Sonic’s USP?
I am not well versed in answering that. But what I could make out is that the focus is on user and customer experience. From the founder’s background I am sure he will do a good job of that. From a basic functionality perspective I don’t think there is any highlight. Please point it out if you think so. Thanks.

What is a comparable business of Apollo Finvest?
Not NBFC for sure in my books. Perhaps IT companies which have large BFSI exposure/products.

I personally do not like this story weaving of FinTech and being Uber or xyz of something. In simple terms it is selling a piece of software that they believe is very user friendly. Maybe my understanding is incorrect.

I will not be spending further time on research on this company unless some VPer comes up with a solid thesis

Rgds
Deepak

Disc: Have a negligible token position to track the company.

sahil_vi · June 12, 2021, 8:30am

Hi deepak,

Will address core of your question. Core business is a platform they are building: to enable fintechs to do digital lending. They bring capital, AF brings the underwriting, and fintech bear the credit costs. As more fintechs are onboarded, platform gets more efficient network effects kick in every increments NBFC makes their underwriting better and harder for other similar nbfc’s to compete. At least that is the thesis. Also they want foresee a future where all tech players become fintech: eh Zomato giving loans to restaurant businesses.

I do admit that their MD is not a very clear communicator (my biased opinion I could be terribly wrong). Too many metaphors too much jargon. Not enough clarity. But this is what I could understand.

Please do hear this concall if you haven’t already:

This presentation was also given as prematerial for this concall although I don’t know if it was uploaded to exchanges :

Ps: this was shared by the company but not sure if this counts as public record. I think it does but if it doesn’t I’m happy to delete my post.

Sanjay_Kumar_E · June 12, 2021, 8:43am

In addition to their own products, they also sell products of other FinTechs. That explains the Fees & Commission. And they have high FLDG on their lending.

The following should help you understand better.

Podcast with the CEO
Spotify
ET Prime piece
apollo finvest: A tech firm with an NBFC licence: how Apollo Finvest reinvented legacy in two years - The Economic Times
Kumar Saurabh thread analysis
https://twitter.com/suru27/status/1371527594613436417?s=20
And the latest concall shared above

Disc - Have a very small position from 300 levels.

deevee · June 12, 2021, 9:18am

Hi Sahil

Thanks I have gone through the concall (I believe this is the only one they have done) as well as almost all the links and tweets the founder keeps sharing. I didn’t get anything additional from the concall. On a lighter note for 7-8 years I have been hearing similar stories ‘Capital as a service’ as he has said actually requires capital and a very strong balance sheet and access to cheap and large amounts of capital to outperform. If you look at the big internet companies and with whom they are using for credit lines you will see the kind of companies involved, for instance you hold one of these companies in your portfolio. @vaedermacher has a very pertinent point.

In the first half of the decade the story in Fintech from 2010-2015 was that of anchoring around payments, the story in the second half evolved to lending as the anchor and now it is being the service provider. In theory it is perfect but having seen this for a very long time I am skeptical when this story is sold usually. I can’t seem to figure out what is so special with sonic or apf?

Thanks @Sanjay_Kumar_E I had gone through @suru27 's notes and any news article. Will check out the podcast guess I missed it.

Anyways thanks for your inputs guys I will keep a note on their progress.

Rgds
Deepak

ravish · June 12, 2021, 9:23am

Did anyone looked at this Muskmelon Fintechnology Pvt Ltd ? Mikhil runs it and i think it has the same type of Biz. If someone got more info on this then share here…in 2019-20 i gave it a pass due to this sister concern. Also no mention of this(positions hold by Mikhil in other bizs) in their Annual Reports.
https://www.zaubacorp.com/company/MUSKMELON-FINTECHNOLOGY-PRIVATE-LIMITED/U67200MH2018PTC307384

Vineetjain111 · June 12, 2021, 6:38pm

Hi @ravish

I think Muskmelon was the name of the company Mikhil and Diksha founded initially, before deciding to go ahead with their venture through the already listed entity Apollo Finvest. Thats what I can make out from the following interview (at 58 minutes) of Mikhil’s.

I strongly recommend all to watch the entire interview from the beginning to understand Mikhil’s journey from being employee number four at Coupon Duniya, to founding PharmEasy, to heading product and growth for Hotstar to Apollo Finvest. The chat is super candid and the language is easy for follow for non-tech people like myself (the interviewer is his childhood friend). You will get deep insights about his personality and thought process. I’m going to stick my neck out and say that this guy can be one of the great Indian business leaders over the next two decades (I am definitely biased).

If you can’t watch the entire interview, at least watch from 58 minutes to the end where the focus is on Apollo Finvest - has interesting snippits which are not covered in the concall, or in other videos and published materials.

Will attempt to answer some of @deevee’s questions:

My understanding is that there are two types of Fee / Commission. A lot of this is conjecture gathered from different interviews of Mikhil, so please correct me if someone knows specifics.

For Fintechs using Apollo Finvest’s NBFC lisence and technology infrastructure (platform that includes all stack APIs), they charge some fees proportional to size of loan book - as the book grows, the fees grow
They separately sell Sonic as a loan management system to other lenders

Apart from this, they offer Capital as a Service which generates some revenue - the spread between their borrowing and lending. The loans are given to the final borrower and not to the NBFC. Apollo has FLDGs and first right on receivables.

Many fintechs would have been hit hard by the pandemic and lending would have slowed down considerably, hence reducing the fee income. Some Fintechs may have even been put out of business.

Mikhil says that his mother used to run this as a traditional small scale NBFC. Seems like his father had incorporated it many years ago.

Like @sahil_vi said, the core business is the platform. They want maximum number of fintechs to be customers of the first variety as mentioned above. The USP of the platform is that of any platform - more fintechs, better data, better underwriting support to fintechs, easier access to capital. Also the ppt shared is on their website, so don;t worry about deleting it.

Sonic is an separate LMS for other lenders. Anyone can build a similar LMS, but it seems that not many have. Milhil also speaks at length about the fungibility of the Sonic, and how it is a big draw because it is completely customizable by the user.

This is a bit simplistic. Its more like creating an ecosystem to help fintechs focus on innovation and go to scale. We are underestimating the amount of data that they may be able to generate through this process and the underwriting efficiencies that will come about with that. Think of it as a platform on which many innovative models will be tested and the learnings and subsequent improvements being will be available for all.

Whether this will go to scale or not, only time will tell. There is a similar company in the US called Cross River Bank who’s lending portfolio increased 100x between 2019 and now!!
https://fortune.com/2020/07/15/ppp-loans-bank-fintech-cross-river-citi/

There are other Indian companies in the space as well, like Kudos Finance. Expect more of them to come in. But given the pedigree of the promotor and the blue sky nature of the opportunity, I find it a favourable risk-reward.

P.S. Found out from the video I shared that the COO Diksha Nangia is Mikhil’s wife.