Prosus/BillDesk: building Indian ecosystem will help pay the bills


Prosus updates

Amsterdam-listed Prosus is getting with the programme. A $4.7bn acquisition of Indian payments gateway BillDesk elevates it from investor to consolidator. Not before time.

The investment arm of Naspers is itself a product of the contortions forced on the latter’s outsize stake in Tencent. That acquisition was undoubtedly a coup. But following Tencent’s lead and rolling up acquisitions gives Prosus a more sustainable edge over mere financial investors.

That matters because Prosus has paid up for BillDesk’s top line growth, rather than additional assets or profits. The deal puts BillDesk, which has no debt, on 112 times trailing ebitda or 18 times revenues. Assuming revenue growth of 20 per cent to 35 per cent, using last year’s ebitda margin of 17 per cent, Prosus paid a forward multiple of well over 80 times ebitda. Even if that trails listed peers Adyen and Latin America’s dLocal, it still looks rich.

Yet by plugging BillDesk into its expanding PayU basket of payments and fintech operations, Prosus should be able to extract cost and revenue synergies, typically about one-tenth of the cost base. BillDesk allows Prosus to build out client bases at both ends of transactions, offering a Stripe-like payments platform for merchants and businesses plus a consumer-facing digital bank.

Charts showing how PayU is building a financial ecosystem

Prosus, like fellow investors in fintech and payments, counts on growth continuing. BillDesk has grown revenues at an annual compound rate of 20 per cent in the five years to 2020. That should continue. India’s central bank predicts more than 200m new users will adopt digital payments over the next three years. Annual transactions per capita should rise tenfold to 220.

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Supporting this is India’s demographic which tilts towards its youthful, mobile-toting cohorts. They should help create new business lines. PayU is exploring insurance, wealth management and buy now pay later plans among other products to cash in on the flywheel effect.

On the other hand, Beijing’s new trustbusting zeal has spoiled the party for China’s consolidators, scuppering Tencent’s plan to create a $5.3bn live streaming giant by bolting together DouYu and Huya. Without such political roadblocks, Prosus has a chance at building ecosystems in India.

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