Ebix, controlled by Robin Raina, is a US listed conglomerate with a focus on payment services, travel, and IT in India with a market cap of about $800 million. Earlier this week, Ebix filed for Chapter 11 bankruptcy protection in Northern Texas, according to a court filing, Bloomberg reported.

However, the company on December 19 said that EbixCash, its 100 per cent owned Indian subsidiary, is insulated from the US-Only Chapter 11 filing.

Ebix is also planning a $4.5 billion IPO of EbixCash.

“With its prior auditor resigning amidst alarm bells and the irregularities seemingly increasing, we think Ebix is trying to (go for an) IPO of EbixCash in a last-ditch effort to save itself. However, there are multiple indicators that the revenue attributed to EbixCash is grossly overstated,” the research firm said.

The research firm said it has gone short on Ebix shares, implying that it has sold the shares which it doesn’t own in order to make profits.

Hindenburg said a substantial portion of EbixCash’s gift card revenue is non-existent. “Consequently, we expect the EbixCash IPO will flop or fail. Given Ebix’s massive near-term debt load in a rising rate environment, we see significant solvency risk over the next 12 months,” it said.

In its December 19 statement, EbixCash said its companies in India, besides all international subsidiaries and their franchisees around the world are not included in the Chapter 11 filing.

“All worldwide operations of the company will continue to operate in the ordinary course and without any interruption. EbixCash has strong standalone financials and governance, with its cash flows solely available for its own needs,” the statement said.

Chapter 11 process mandates insulation between the international companies and the US company in terms of any intercompany dealings, it said.

In February 2021, Ebix’s auditor, RSM, resigned because Ebix wouldn’t provide evidence regarding “unusual transactions related to the Company’s gift card business in India”. The auditor was “unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions”, Hindenburg said.

It said Indian corporate records reveal that the unusual transactions seem to have accelerated since the auditor’s resignation. EbixCash’s key gift card subsidiary has two customers that comprised a total of $89 million in 2021 revenue (almost 10% of parent Ebix’s topline revenue). “Neither customer’s business appears to be functional, and the top customer appears to have an undisclosed prior relationship with the entity,” the US research firm said.

The top customer reported just $151,000 in sales in its most recent financials (2020) but has supposedly accounted for $46 million in revenue to EbixCash in FY 2021, it said. “We visited its official corporate address and found it was no longer in use. The entity’s key product was an app with only 1000+ downloads and 5 reviews, the last of which was 2018,” it said.

The second customer accounted for $43 million in revenue to EbixCash in FY 2021, it said. “Despite claiming in corporate filings that 99% of its revenue is derived from e-commerce, its website no longer works. The entity is registered to a 525 sq. foot office space in Delhi. We visited the site and found the business is no longer there,” the research firm said.

EbixCash also claims to have a large retail distribution network, it said. “We visited the featured branch outlet highlighted in an EbixCash corporate presentation and found it doesn’t exist at the address. The picture of the branch seems to be obviously photoshopped to include an Ebix storefront where there isn’t one,” the firm said.

“We called every single Itzcash distributor we could find and only about 7% told us they sold EbixCash cards. Can Ebix provide an updated and full distribution list of its supposed 650,000 retail outlets?” Hindenburg said.

“To date, Ebix has tumbled forward on flamboyant marketing and a cult of personality around its founder,” it said. “Under the flashy surface, Ebix’s product execution seems to have floundered. With tightening market conditions, nearing debt maturities and worsening financial metrics, we expect Ebix’s flash will soon fizzle and become yet another sign of the times.”

For Ebix, the IPO is a race against the solvency clock: the company has $643.9 million in debt coming due in February 2023 and only $75.9 million in cash and cash equivalents as of last quarter-end, it said. It hopes to deploy $350 million in proceeds from the IPO to pay down debt, the firm said.

“But the EbixCash IPO has faced questions and delays for the last three years. The company had previously missed targets of 2H 2019, Q2 2020, “towards the end of 2021” and Q1 2022 as prior planned dates for the IPO,” the research firm said.

“We hope Ebix provides a detailed explanation on its “Key Clients” and customers that are driving the company’s business, particularly its gift card business,” the US research firm said.

A mail sent to EbixCash did not elicit any response.

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