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Emerald finance: Massive growth ahead


disc: invested


Emerald finance is a microcap that promises great potential in the coming years. This blog will aim to analyse the business of Emerald finance and the market dynamics it operates in. Lets begin!


About the business


History



Emerald Finance was founded by Sanjay Aggarwal and Mrs. Anubha Aggarwal in Chandigarh. It began operations as a DSA (Direct Selling Agent) for a US multinational company named AFCO Financial Services. AFCO was the first US multinational to enter India’s retail finance market, and Emerald Finance was selected as one of their key Direct Selling Agents. In 2015, Emerald Finance obtained its NBFC licence and was subsequently listed on the BSE.

Following this, the company emerged as one of the leading DSAs for multiple partners, such as HDFC Bank (specifically for gold loans) and Fullerton India. Leveraging the data gathered from its DSA customer base, Emerald Finance began offering business loans to these clients. The portfolio has performed exceptionally well in terms of asset quality. Their competitive edge lies in their longstanding relationships of 10–15 years with these companies and clients, enabling them to deeply understand their financials, behaviour, and intent.


In 2022, a US-based company named Rainpay partnered with Emerald Finance to offer a financial product called Earned Wage Access (EWA), which brought significant prominence to the company. Although Rainpay exited India due to its investors' demands, the concept of EWA remained with Emerald Finance. Recognising its potential, Emerald developed its own technology infrastructure to scale this business effectively.

Before delving into their business operations, let’s first understand what Earned Wage Access (EWA) is and the opportunities it presents.


What is EWA?

Imagine this: You’re an employee, earning a steady monthly salary of ₹50,000. It’s the 15th of January, and life throws you a curveball—your fridge breaks down unexpectedly, or maybe it’s your child’s school fees that need urgent payment. You open your wallet, only to realise you’re running low on cash. Payday is still two weeks away.

In the past, you might have turned to your credit card, worried about interest piling up, or even borrowed from friends or family, feeling awkward about asking for help. But now, there’s a smarter option: Earned Wage Access (EWA).

With EWA, you don’t need to wait for payday. Let’s say you’ve already worked 15 days in January—you’ve earned ₹25,000, even if it hasn’t hit your bank account yet. EWA allows you to access that ₹25,000 instantly, right when you need it. No loans, no debt, just your money, when you want it. The fridge gets fixed, the fees are paid, and all of that from your rightfully earned money. On payday, the amount you accessed is simply deducted from your salary.

Now that you understand EWA, lets understand how the Industry is in US and then India.


EWA Industry


The USA

The US has been a pioneer in the EWA (Earned Wage Access) industry, with some of the biggest players including DailyPay, Rainpay, PayActiv, FlexWage, and ZayZoon.

The EWA market in the US has experienced significant growth. In 2020, the market size reached $9.5 billion with 55.8 million transactions, a threefold increase from 2018, when it was $3.2 billion with 18.6 million transactions. By 2024, the market value is estimated to be $23.5 billion. According to various reports, it is projected to grow at a rate of 8–25% (I acknowledge this is a wide range, but trustworthy or converging data is hard to find).

The biggest player in the US, DailyPay, facilitated $7 billion in transactions in 2023 and had access to four million employees. The company recently raised $170 million, achieving a valuation of $1.75 billion. While no other company matches the valuation and scale of DailyPay, players like PayActiv and Rainpay are valued at $500 million and $250 million, respectively. These businesses are relatively new startups and are just beginning to scale!


India

India, has a very nascent market, with multiple companies still emerging. The leaders of the industry are Refyne, jiffy, Hastee, KarmaLife, Wagely and Emerald (Emerald is nowhere near the top though). Refyne is the undisputed giant which has raised a total of 106 million dollars.

There are no reports that discuss the total industry size, but lets try to understand what the top players are doing. Refyne manages 30L transactions every quarter, which is a staggering amount. Moreover, they have tied up with 500 organisations and have access to 800,000 employees.

Jiffy, another competitor of Emerald has tied up with 200+ organisations and raised funding worth 10 million dollars from marquee investors Sequoia capital.

KarmaLife is another competitor which has been aggresive in the market. They claim to have 2M users and hence, the largest EWA platform. Last year, they raised 44 crores and grew by 500% in FY23 (crazy right).

Hence, we can establish that the industry has a lot of fast growing leaders, and Emerald is clearly smaller than them. So why should we still care?

Because it is a blue ocean market!

About 75% of formal workers in India live paycheck to paycheck, most of the gig economy does not have access to formal lines of credit. Just imagine, what is the yearly spend on salaries by the whole country? (lets just take formal economy and exclude government employees and others) Its in thousands of crores. There are multiple organisations that are yet to be tied up, and the market still has to be created. Even if the disbursements are 500 crores a month, its still a low number. A lot (and i mean, A LOT) of runaway remains. We will get to the specifics in the thesis.


Advantages of EWA


Advantages for Employers

  • Improved Employee Retention: High employee turnover can be costly for businesses, especially in industries like retail, hospitality, and the gig economy. EWA addresses one of the primary causes of employee dissatisfaction—financial stress. By offering a tool that provides financial flexibility, employers can increase employee loyalty and reduce turnover. This benefit is especially significant in competitive labor markets where retaining skilled workers is crucial.

  • Enhanced Productivity and Focus: Financially stressed employees are often distracted at work, leading to reduced productivity. Studies show that financial worries can significantly impact job performance. By giving employees access to their earned wages when they need them, EWA minimizes financial distractions, enabling workers to focus more on their tasks. This can lead to better outcomes in customer service, operational efficiency, and overall team performance.

  • Cost-Effective Benefit Offering: Compared to other employee benefits like health insurance or retirement plans, EWA is a relatively low-cost option that still provides significant value to employees. Many EWA platforms operate on a cost-sharing or employee-paid model, reducing the financial burden on the employer. For businesses, this is an easy way to improve their benefits package without incurring major expenses.

  • Stronger Employer Branding and Recruitment Appeal: In a competitive hiring environment, offering EWA as a part of the benefits package signals that a company cares about its employees' financial well-being. This can help attract top talent and enhance employer branding. Job seekers are increasingly drawn to companies that offer innovative and supportive benefits, and EWA can serve as a differentiator in recruitment. It becomes a bare minimum that if one company adopts it, the rest must do so as well.


Advantages for Employees

  • Immediate Access to Earned Wages During Emergencies: Life is unpredictable, and unexpected expenses such as medical bills, car repairs, or utility payments can arise at any time. Waiting for the traditional payday can leave employees in financial distress. EWA provides employees with immediate access to money they’ve already earned, enabling them to handle emergencies without turning to high-interest loans or credit cards.

  • Avoidance of Debt and High-Interest Borrowing: Many employees rely on payday loans, credit cards, or informal borrowing to bridge financial gaps, often incurring high interest and fees. EWA offers a debt-free alternative since employees are simply accessing wages they’ve already earned. This reduces the financial burden of interest payments and helps them avoid the cycle of debt.

  • Improved Financial Planning and Cash Flow Management: For employees who live paycheck to paycheck, budgeting can be a challenge. EWA allows workers to smooth their cash flow throughout the month, giving them more control over when and how they use their money. By providing financial flexibility, EWA empowers employees to make better financial decisions, reducing the risk of late payments and penalties.


Business models of EWA companies

  • Employer-sponsored: In this model, employers partner with EWA providers to offer the service as an employee benefit. The employer usually pays a subscription fee to the EWA provider and may subsidize transaction costs for employees. This model is prevalent in countries with well-established regulatory frameworks and financial infrastructure, ensuring compliance and consumer protection like the USA . Employer-sponsored EWA often integrates with existing payroll systems, streamlining access for employees and minimizing disruptions to payroll processes . As mentioned above, This is quite prevelant in the US markets, but not in India. It makes sense that indian companies do not use this model as the current aim is market creation, and that means reducing all barriers of entry. (one of the biggesy being encouraging employers to onboard)

  • Employee-sponsored: In this case, the EWA companies onboard employers for no subscription fee and offer these services for free. Instead, they charge the employees per transaction. A lot of companies like Refyne ask for a flat rate (from rupees 9 to 200) while Emerald charges a % transaction fee of about 2-3%. As the market matures, we can expect brokerage like disruption to happen and the fees will be flat. I do not see a % type income remaining here for too long. The only reason it is existent right now is because market is maturing.


Emerald Finance

Phew, that was a long write up on EWA. Now lets finally begin with the company analysis.


Business operations

The company has three business verticals: DSA (direct selling agent), Business loans and the emerging vertical: EWA.


DSA

In DSA, the company operates under ShubhBank.com and is one of the top distributors for banks such as HDFC Bank (specifically for gold loans). The company is consistently partnering with banks and lenders to boost its distribution income. In Q3FY25, they partnered with an entity named Avanse and another bank.

DSA is an off-balance-sheet business, which is highly lucrative in terms of return ratios, as it leverages the existing network while charging a fixed fee from the bank. They offer a wide range of loans, including gold loans, home loans, and others. Notably, they rank as the third or fourth largest pan-India player in gold loan syndication.

Emerald Finance believes that this segment offers a strong runway for growth, given the limited competition and their well-established position. It is crucial that they sustain growth in this area (and I believe they will), as DSA contributes 50% of their revenue!


Business loans

Emerald Finance has an excellent track record in asset quality, maintaining 0% NPA for the past 3–4 quarters. Their loan book has grown significantly, increasing from ₹33 crore in March 2023 to ₹45 crore in March 2024, and further to ₹63 crore by Q3FY25. This represents a remarkable growth rate of approximately 40% CAGR. While the loan book is still relatively small, this is an advantage, as it allows them to sustain growth without compromising asset quality. Business loans are grown organically, with Emerald Finance leveraging its DSA business to build lasting relationships with clients.



SBI lends them capital at an interest rate of approximately 10.95%, which they then lend at 18%, resulting in a spread of around 7%.





The business does not plan on going beyond 2:1 debt to equity ratio, which primarily means two things.

  1. The profits are better because they do not pay 10% on 1/3rd of the loan book. However, the ROA takes a hit as they aren't as leverages as traditional NBFCs

  2. A lower leverage ratio means that the book value will not deteriorate as aggressively as other lenders might face. Adding this to the fact that 52% of its revenue comes from off balance sheet operations, they can be valued at P/E multiple instead of Price/book.


This business accounts for 48% of their total revenue. Since their loan book is quite small and they have access to multiple clients due to their history and DSA, we can expect a good growth rate here as well.



EWA


It's funny that EWA only accounts for 2% of the revenue but takes all the attention away in their con-calls. The reasons ares few, which we will get to.

The EWA program begun only recently, about 3 quarters back. It is being spearheaded by Talin Aggarwal, the son of the founder, Sanjay Aggarwal.



Emerald Finance employs several strategies to onboard corporates. First, it has its own sales team dedicated to reaching out to corporates. Second, it runs an affiliate-style programme where its sub-agents (a network of 1,600+ agents pan-India from its distribution business) are responsible for onboarding companies. These sub-agents earn 15–20% of the income generated from the companies they bring onboard (a very effective model when executed properly). Third, Emerald partners with HR firms that use their networks to bring in additional clients.

Once onboarded, companies provide KYC and meet other standard requirements, enabling their employees to draw their salaries whenever needed.

Regulations allow employees to draw only 40% of their earned salaries. For example, if an employee has earned ₹20,000 by the 15th of the month, they can withdraw only 40% of it, which amounts to ₹8,000.

For this service, Emerald charges a 2–3% transaction fee upfront.

When employers issue salaries, the advanced amount disbursed by Emerald is deducted and returned to Emerald Finance.

This business model enables Emerald Finance to generate an IRR of 36% (excluding costs and incentive-based fees paid to sub-agents), as disbursals are made for only a month, earning them 3%. It is an exceptionally strong business model.

Moreover, the risk of capital loss or NPAs is minimal, as employers repay Emerald Finance directly. Losses are possible only in the rare instance of the entire company shutting down.

Currently, Emerald Finance disburses approximately ₹1.5 crore per month and aims to increase this to ₹2 crore by March (a highly achievable target). The company's long-term goal is to reach ₹15 crore in monthly disbursements by March 2026. Emerald has onboarded 40 companies so far, with a target of 60 by March 2025 and 250 by March 2026. While the company missed its earlier guidance of onboarding 100 companies by March 2025, it is still on track to achieve the ₹2 crore disbursement target.

Emerald’s investments in EWA are primarily upfront, having been directed toward building a robust tech infrastructure capable of handling 20,000 transactions per second. This ensures that no significant reinvestment will be required in the near future.


Who uses EWA the most?

People below 40,000 salary are the ones who use this the most. Emerald Finance has observed that the adoption rate after a company is onboarded is 15%. I believe as the concept becomes common, we can witness a higher penetration rate for their companies.


Cross selling opportunities

Looking 10–15 years ahead, I believe EWA will evolve into a business with little to no differentiation. The 36% IRR we see today will likely become unattainable for EWA companies in the future. However, what will truly matter is the distribution network and reach that companies create. In the future, EWA will serve primarily as a tool to penetrate the masses.

With the data and ongoing relationships Emerald builds through EWA, they can offer personal loans and other financial products to these customers or act as a distributor for banks. This capability is what will ultimately enable the creation of larger fintech companies in this space.

Therefore, it will be crucial for companies like Emerald to prioritise this focus—and they are doing so.

Emerald plans to launch its personal loan offerings soon and retains the optionality to distribute bank products. However, their underwriting process will need careful analysis, as personal loans are inherently riskier.

Thesis

  • High share of low risk businesses: the chances of things going wrong are quite low, as EWA and distribution are to some extent, risk free. moreover, the business loans too have been growing at a good pace but are also of high asset quality (owing to multiple factors discussed above) Hence, the chances of credit costs increasing are negligible.

  • Tailwinds: EWA tailwinds are very strong, and should remain so for a while. There is a need for such a product, the market is underpenetrated and its a win win win for all (emerald, employers and employees). There is true economic value to this product and hence the adoption should only increase.

  • Margin improvements: The business made a lot of technological improvements and hence has improved their margins tremendously. Moreover, DSA and EWA will be margin accretive as they keep scaling. There are barely any maintence costs and hence most of the revenue should flow down to PAT. However, we can not expect the huge expansion that was in the past, but I do believe that exists a possibility of expansion. Although, we might have to aim our expectations with personal loans (thats fine since profits increase substantially)

  • Strong unit economics: EWA posseses great unit economics, as the company can make IRR of 20-24%, on the lower end. As the share of EWA improves, we can expect the return ratios to keep improving as well.

  • Optionalities: Cross selling opportunities are a huge TAM. There is enough economic value present in them and it is in my opinion, a good decision by Emerald to start focusing on them. This also allows them to acxt as distributors at a bigger scale. The network they manage to create will be the true MOAT in the end.

  • Guidance: The company has guided to 8-10x their PAT in the next 3 years and they have been walking the talk so far as they have been delivering 100%+ PAT growth for the past three quarters. The company is very bullish in terms of their numbers as they aim to 10x their disbursements by March 2026 to 15 crores and 6x their corporates onboarded to 250. There are a few potential worries that must be discussed in terms of their guidance, but so far they have walked their talk in terms of PAT growth (not companies onboarded)

  • Fully Integrated player: A big edge that Emerald has that all of the business operations are controlled by Emerald itself. They possess the distriburion, they possess the tech and also the NBFC license to lend. Against the competetion, this is a good advantage to have since all are tech players and have a lending partner.


Anti-Thesis

  • Competition: From my understanding, I find it hard to believe that the disbursements are only 20-30 crores like the management claims. With giants like Jify and Refyne who have raised a lot of money and have hundreds of thousands of customers,I believe the disbursements must be above 100 crores per month. However, thats still less. What concerns me is the possibility of big NBFCs entering (banks can not apparaently due to regulations). NBFCs like Bajaj would make short work of all the start ups and other companies present. There are a couple reasons that make me feel a bit okay though. 1. The market is too big and hence even if a lot of competiton enters, there wont be much problem for a while in terms of revenue and profit growth. 2. EWA essentially cannibalises credit cards (to some extent) It is a big counter intuitive to push a product which will disrupt a big profit earner (only a few companies like Netflix and Apple have done so) and hence, big companies might not enter until the industry has actually proven to big enough ans lucrative enough. However, it is a very big concern in the future as differentiation of services is yet to be seen and if the market is saturated (because of competetion or wrong estimation of TAM), there is no thesis here. Its a straight sell

  • Overly bullish guidance: Personally, I like overly bullish guidance because i like to see that intent. It is what Elon Musk does. For example, guiding for a 5x growth and only growing 3-4x is still exceptional. However, as invesotrs we must take the guidance with a pinch of salt as they failed to grow their corporates to a 100 and instead revised to 60. Moreover, the guidance given in terms of disbursements+corporate onboarding seems a bit far fetched and it might be a good idea to tame our expectations. Also, there might be margin expansion but it is mostly capped now. Hence, we must also keep in check the growth guidance.

  • Failure of the new product: If their products like the unsecured personal loan fails, we might see NPAs and degrowth. That is clearly not what is expected of the business and can throw all our thesis for a toss.

  • Illiquid: Its only a 500 crore company with little float. Hence, be careful with that.



Valuations and technicals

I don't really think technicals matter due to the illiquid nature, but it gives a good idea of the trend. After some consolidation around 60s level, the stock has had a non stop rally and has doubled. With the current market sentiments in mind, it does feel a short term top has been made, but that is pure speculation.

In terms of valuations, it is currently trading at a PE multiple of 66. FY25 basis, its probably 52 times and FY26 basis, its 30 times or so. (Disc: I invested at 60s levels so the multiple was low) If the business executes, the multiples are reasonably cheap, but it all goes down if they do not. It all comes down to your risk appetite and conviction on the management's conviction.


That is the end of the my first blog of 2025, I plan on doing much deeper research in the coming year, let me know your feedback on how I can improve.

Thank you!



Citations

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  1. Concalls, credit reports, etc.












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