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Ebix 2Q19 results +1

12:51 08-Aug-19


A typically long-winded Ebix conference call has just concluded, and there were some points worth reporting on after all, mostly pertaining to the insurance business.  Management does not consider this business legacy and is working to grow it, especially in light of India approving 100% foreign investment for insurance intermediaries in what seems to be a growing Asian trend.  I've pointed out the growth here in my BGCP commentary, and the recent private equity acquisition of iPipeline for about 10x sales and over 3 times its value at the end of 2014 underscores that.  Management was at pains to point out that its business is much larger and should be more valuable given that it has a greater degree of recurring revenue.  That business had a lot of puts and takes in the most recent quarter, with Brazil and Singapore growing 30 & 20%, respectively, but delays resulting in a temporary $1.2M hit.

Also of interest to me was management's discussion of debt management, given its plans for further acquisition.  Remaining borrowing capacity is in the neighborhood of $50M, and I was happy to hear management does not want to borrow further pre-IPO.  Rather its plan is to fund growth with cash generated from the business.  To that end, it is willing to give up revenue streams that are unprofitable, as it did with e-governance.  However, that business could return as it believes BNSL is about 90 days away from a $5-10b recapitalization by the government.  Vodafone investors should take note.

All of this just adds detail to my base thesis that growth is worth the risk with Ebix, but to detail the other side of the coin: the EbixCash initiative in Dubai airport still not active, despite Ebix fulfilling all requirements due to regulatory delay.  This is a common refrain in such markets.  Another risk is the misinformation that is so common these days.  Management addressed this directly, and reading between the lines, there may be a law suit related to a short attack crossing line the line and communicating directly with bank investors.  EBIX shares were down sharply this morning, but have been rebounding since the call.  All I can do is reiterate what I said when it was scheduled:

no matter how EBIX shares jump around the real payout probably won't come unless and until the company is able to IPO EbixCash and reduce its debt. 
I think shares are cheap, but there's no telling where the limits are in the meantime.

On 8/8/19 8:48 AM, Esekla wrote:

Ebix has published its second quarter results:

  • $1.08 of EPS beats by 2 cents
  • from $144.3M of revenue, which misses by $5.7M

The press release makes it clear that we should not expect any cessation in growth acquisitions:

We are pursuing a number of other opportunities including the asset purchase of India’s leading Bus exchange company - Trimax from the Indian bankruptcy courts. Trimax is a 35% margin company today with possible revenues of $25 to $30 million a year. Besides Trimax, we are pursuing a number of high margin opportunities in various geographies in the US and abroad.

More importantly, EbixCash growth starred in this report at 72% YoY YtD growth, exceeding previous estimates.  Management plans to retain ownership post-IPO and says,

We will soon be announcing the engagement of 4 to 5 investment banks to lead our EbixCash IPO targeted for Q2 2020. We have made substantial progress in that direction and will be updating our investors soon.

The market may continue to fret about debt until Ebix can execute on that.  Most important to me is that the share count has and should continue to remain steady.  The strong dollar resulted in a $3.1M hit to sales figures, and overall revenue grew 21% YoY excluding the discontinued e-governance business.

In related macro news, the rupee dropped to $0.014 on the latest spat with Pakistan, but looks to be stabilizing just above that level.  This is not meant to make light of such moves by India's pro-Hindu government.  Both its ethnic and protectionist policies ought to be amended.  However, Ebix is one of the forces making India both more globalized and competitive, which should eventually help on both counts.

The conference call begins at 11am.  I will listen but only report again if there is some quantification on the EbixCash IPO or something else of particular interest.  That is unlikely, as management has previously been unwilling to detail synergies before making related employee changes.