Ebix: This House of “Cards” Seems To Have a Glaring Fake Revenue Problem

Summary: Ebix, Inc. (NASDAQ:EBIX)

• Ebix is a U.S. listed conglomerate with a focus on payment services, travel, and IT in India with a market cap of about $800 million.

• The company is planning a $4.5 billion IPO of its 100% owned Indian subsidiary, EbixCash, implying an imminent quadrupling of Ebix’s enterprise value. Ebix stock initially tore 75% higher on news of the planned IPO but has since fallen back to pre-IPO-announcement levels.

• Ebix reported revenue growth of 71% during the 2-year period of 2019-2021, driven largely by sales of prepaid gift cards. Without its gift card division, Ebix’s sales would have declined by 32% in the period.

• At EbixCash (the subsidiary it plans to IPO) the gift card division accounted for 82% of 2021 revenue.

• 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 hopes to deploy $350 million in proceeds from the IPO to pay down debt.

• 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.

• 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.”

• 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 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. 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.

• The second customer accounted for $43 million in revenue to EbixCash in FY 2021. 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.

• EbixCash also claims to have a large retail distribution network. 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.

• EbixCash’s subsidiary lists 970 supposed EbixCash independent distributors. We called every one of them: 403 didn’t pick up, 527 told us they didn’t sell Ebix cards, and 40 (~7% of those who picked up) told us they sold the cards. Many who sold the cards told us they were selling fewer now than prior to the pandemic, contrary to Ebix’s claims.

• EbixCash also touts its technology offering, claiming its app has 1.5 million downloads. The Google Play store shows “100,000+” downloads with an average review of 1.5 stars across 2,400+ reviews. The ocean of 1-star reviews cite complaints such as money being fraudulently stolen from users, terrible customer service, and the app not working.

• We also tested the app. Virtually every claimed feature didn’t work. An EbixCash rep told us the app was “under maintenance”. Based on our experience, the app isn’t even ready for the market let alone a prime-time IPO.

• Ebix has a complicated corporate structure, reporting 69 key subsidiaries in 2021, with other sub-entities. In 2021, ~37% of its pre-tax income was derived from murky, opaque tax havens like Dubai and Mauritius. Given our findings on gift card revenue, we suspect there are other accounting skeletons in its closet.

• Ebix has cycled through 7 different auditors since 2004, a classic hallmark of accounting irregularities. Its current auditor, KG Somani, is an Indian firm whose only U.S.-listed client is Ebix, per Public Company Accounting Oversight Board (PCAOB) records.

• As a former executive of EbixCash told us, “The financial reporting was a very controlled thing. It’s very difficult for anybody running the company to have much visibility on the financial side. It’s very centrally controlled by (Chairman & CEO) Robin (Raina) and his close team. They’ve been working with him for a very very long time.”

• We think 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.

Initial Disclosure: After extensive research, we have taken a short position in shares of Ebix, Inc. (NASDAQ:EBIX). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report

Background And Bull Case: A U.S.-Listed Conglomerate Positioned To Take Advantage Of Increased Indian Digitization With An Array Of Payment, Travel, And IT Businesses

Founded in 1976, the company that became Ebix, Inc. (then known as Delphi Information Systems) went public in 1987. At the time, the company mainly offered software solutions to insurance companies. [Pg. 3]

In 1999, its current CEO and Chairman, Robin Raina took over and renamed the company Ebix. [Pg. 3, Pg. 47] Raina now owns 4.3 million shares, or about 13.9% of the company. [Pg. 120] Along with its rebranding, Raina brought an extroverted style to the otherwise sleepy world of insurance software.

After taking control of the company, Raina embarked on an aggressive debt-fueled acquisition spree, helping the company shift from a $19 million loss in 1999 to $103M in annualized non-GAAP earnings in 2021. [Pg. 13]

Ebix has purchased 27 companies since 2017. Its largest and most recent acquisitions were Via, an online travel business, Itzcash, an online payment provider that specializes in selling pre-paid gift cards, and CentrumDirect, a foreign exchange business. [Pg. 59]

As one former EbixCash executive explained to us, the pace of acquisitions was unlike anything he had previously seen, describing Chairman & CEO Robin Raina’s acquisition style as lacking formal due-diligence:

“I was personally amazed at the way he would carry out these negotiations, discussions and close because I was used to a more formal, more engaged (process) where a lot of people were involved, people are making presentations and sharing why this valuation is good and here I was sitting with a man who would across the table decide on the valuation and agree on the terms.”

The same former EbixCash executive described Raina as “self centered” and a “control freak”, adding that his style resulted in Indian acquisitions that are now all struggling:

“He would be so self-centered. He always felt he knew the best and what he knew and what he thought was the only way to do things. He was very closed to new ideas, new thinking because he was so successful in those acquisitions in (the) U.S. he thought the same model would work here (in India) for which Ebix today is struggling in all the businesses it acquired.”

In March, Ebix Announced Plans to Take Its 100%-Owned Subsidiary EbixCash Public, Aiming for a $4.5 Billion Valuation, Implying An “Imminent” Quadrupling of Ebix’s Enterprise Value

Ebix Stock Surged Higher By As Much As 75% Following the News

On March 10th, 2022, Ebix announced it had filed a prospectus with Indian securities regulator SEBI for an IPO of up to U.S. $787 million (INR 60,000 million) in shares of its ~100%-owned subsidiary EbixCash. [Pgs. 24, 342]

Media reported that Ebix was looking for a U.S. $4.5 billion valuation for the subsidiary.[2] In March 2022, analyst Jeff Van Rhee from Craig Hallum described the IPO as “imminent” and called shares “extremely compelling”, raising his price target to $100 from $75.

Given Ebix’s enterprise value of about $1.4 billion at the time, the IPO valuation and surrounding news flow suggested a quadrupling of Ebix’s enterprise value. Predictably, Ebix’s stock spiked on the news, rising as much as 75% over the course of 2 days, from $25.37 to an intraday high of $44.42.

Since then, Ebix’s stock has traded down to about $25 (a market cap of ~$795 million).

Ebix Has $643.9 Million in Debt Due February 2023 With Only $75.9 Million In Cash

At A ~4x Net Debt/EBITDA Ratio and With 4 Straight Years of EBITDA Decline, A Successful IPO Of EbixCash Is Critical To Ebix’s Solvency

As of its most recent quarter, Ebix reported $646 million in total debt, consisting primarily of a revolving credit facility and a term loan, with $643.9 million coming due in February 2023. [Pg. 22] The company only had cash and cash equivalents of $75.9 million as of quarter-end. [Pg. 4]

Ebix has said that approximately $350 million of forthcoming EbixCash IPO proceeds would go to “reduction of Ebix Inc.’s outstanding debt”, alleviating the company’s substantial and near-term debt issue.

Ebix’s EBITDA has notched a steady decline for 4 straight years, from $165 million in FY 2018 to $141.8 million in FY 2021, according to FactSet. With its net debt/LTM EBITDA at ~4x, its EBITDA shrinking and virtually all of its debt coming due in about 8 months, the company seems reliant on a successful IPO of EbixCash to remain solvent.

The Planned IPO of EbixCash Has Already Been Delayed For 3 Years.

EbixCash’s India IPO has been delayed for 3 years:

• In August 2019, the company announced an IPO target of 2H 2019.
• In June 2019, the company announced an IPO target of Q2 2020.
• In February 2021, the company announced an IPO target of “towards the end of 2021”.
• In April 2021 the company announced an IPO target of Q1 2022.

With these prior targets missed, the company now says it anticipates its IPO in the coming quarter, with Indian securities regulator SEBI currently reviewing the company’s draft red herring prospectus.

Ebix Reported Astonishing 71% Revenue Growth During the 2-Year Period From 2019-2021, Driven Largely By Sales of Prepaid Gift Cards

Without Its Gift Card Division, Ebix’s Sales Would Have Declined 32% From 2019-2021

At EbixCash (The Subsidiary Ebix Aims to Take Public), The Gift Card Division Accounted for 82% of 2021 Revenue

While Ebix has dozens of businesses, revenue growth over the last two years has been driven by a segment of its EbixCash business called “payment solutions”, which sells “primarily prepaid gift cards”, according to SEC filings. [Pg. 14, Pg. 38]

Ebix’s gift card business kicked off in 2017, when it acquired 80% of a payment services and prepaid card company called Itzcash for $124 million. Now, rebranded under the name EbixCash, its gift card business targets corporate clients through direct sales, and retail clients through a vast retail distribution network. 

Gift cards are a near-commodity, low-margin business, but Ebix claims it has experienced meteoric growth in the category:

• In 2020, Ebix reported that its “payment solutions” business grew by “more than $200 million” to $256 million, representing 590% year over year growth. [Pg. 14]
• In 2021, Ebix reported that its “payment solutions” business grew from $256 million to $630 million, representing 146% year over year growth. [Pg. 14]

Ebix’s claimed growth in gift card sales has served as a key pillar supporting the entire company’s financials.[3] A cursory glance of Ebix’s reported topline revenue shows seemingly incredible growth of 71% from 2019 to 2021. When looking deeper, however, we see that without its “payment solutions” division (i.e., prepaid gift cards), revenue has actually declined by 32% during the 2-year period.

In 2019, “payment solutions” accounted for ~$37 million in revenue, or ~6.3% of Ebix’s total revenue.[4] By 2021, “payment solutions” accounted for $630 million in revenue, or 63% of Ebix’s total. [Pgs. 14, 57, 73]

Prepaid card revenue as a percentage of sales is even higher at EbixCash, the subsidiary that Ebix is attempting to take public in India. “Payment Solutions” accounted for 82% of EbixCash’s 2021 fiscal year revenue. [Pg. 198]

From 2019 to 2022, EbixCash would have notched a precipitous 55% revenue decline without the support of its prepaid card division. [Pg. 196]

Ebix’s SEC filings suggest the incredible surge in its gift card business was driven mainly by:

• Macro factors including COVID-19;
• Regulatory changes; and
• Its own increased marketing efforts [Pg. 14]

As to (i) Covid and (ii) regulatory changes, prepaid cards and instruments grew by only about 10% per year during the period, according to a report from India’s central bank from December 2021. This implies that Ebix’s sales have massively outperformed the industry.

As to (iii) increased marketing efforts, the financial filings of EbixCash show a ~58% reduction in “other expenses”, which included advertising and business promotion expenses, for the fiscal year ending 2021. Employee benefit expenses also fell 24%, suggesting a scaling back of headcount.

It is therefore unclear how any of the 3 factors cited by Ebix actually resulted in its massive gift card revenue surge.

Part 1: Evidence Suggests That A Large Portion of Ebix’s Gift Card Sales Are Fake

In February 2021, Ebix’s Auditor, RSM, Resigned Because Ebix Wouldn’t Provide Audit Evidence On “Unusual Transactions” In Its Gift Card Business

As we detail later, Ebix has a two-and-a-half-decade track record of serious accounting red flags, beginning as early as 1997, around when current Chairman and CEO Robin Raina started with the company.

The company has cycled through 7 auditors since 2004.

While its revolving door of audit firms is a major accounting red flag, we believe the company’s most recent auditor resignation is most troubling.

In February 2021, Ebix disclosed receiving a resignation notice from its auditor RSM LLC in a press release titled: “Ebix Shares Strong Business Outlook and Discusses Recent Events”.

In the release, Ebix reported that its auditor specifically noted it had resigned due to “unusual transactions related to the Company’s gift card business in India”—in other words, EbixCash transactions.

Ebix later disclosed that RSM had resigned “as a result of being unable, despite repeated inquiries, to obtain sufficient appropriate audit evidence that would allow it to evaluate the business purpose of significant unusual transactions.” [Pg. 27]

Ebix attempted to assuage the market with a brief response to the auditor’s resignation, focusing on how the gift card business has minimal impact on its reported net income (which is true, given that the margins on gift cards are razor thin.) The release failed to focus on the large and growing impact on reported revenue, however.

Ebix hired external consultants to examine the gift card business, “considered their observations” and ultimately decided to take no steps related to any issues raised by RSM. [Pg. 105]

Ebix’s Current Auditor, KG Somani, Is an Indian Firm Whose Only U.S.-Listed Client is Ebix, Per Public Company Accounting Oversight Board (PCAOB) Records

Following the resignation of RSM, Ebix faced a Nasdaq delisting notice on March 2, 2021 for not filing its annual report in a timely fashion.

Three days after the receipt of the Nasdaq notice, on March 5, 2021, the company engaged its current auditor, KG Somani & Co. LLP.

A search of the PCAOB portal shows that Ebix is the only U.S.-listed company that KG Somani has ever reportedly audited.

With a sprawling international structure and key financials derived from disjointed locations, KG Somani hardly seems to be the experienced auditor needed to provide credibility to Ebix’s financials.

Ebix has a complicated corporate structure, reporting 69 key subsidiaries in 2021, with other sub-entities beneath them. In 2021, ~37% of its pre-tax income was derived from murky, opaque tax havens like Dubai and Mauritius. [Pg. 40]

With its new obscure auditor, Ebix reported a clean audit opinion for 2021. [Pg. 54] Based on our review, the auditor missed glaring red flags relating to Ebix’s accounting, particularly its gift card revenue.

“We Have Not Issued These Vouchers”: Two Of EbixCash’s Key Touted Corporate Partners Were Unable To Confirm That They Had An Ongoing Promotion

We wanted to understand how Ebix’s gift card business seemed to defy gravity, especially given that the segment prompted the company’s previous auditor to resign.

According to its website, EbixCash cards are co-branded with payment companies Visa, Mastercard, and Rupay. Given that the 3 payment companies already offer co-branded cards of their own to corporate customers, it is unclear what value EbixCash could even offer as a middleman. [1,2,3]

We began with an obvious starting point: From its investor presentation, Ebix features how its gift card business works with major corporations, such as India’s largest conglomerate, Reliance Industries. It also features its work with Apollo Tires.

We spoke to a National Sales Manager at Reliance General Insurance who seemed unaware of the promotion, telling us “we have not issued these vouchers,” when we inquired about EbixCash. When we pressed the issue, asking whether it could be a promotion in a different geographical location that the manager may not be aware of, they told us “as an [organization], we have not issued them.”

Note, that in Ebix’s own presentation, the “Reliance” card is branded with Flipkart, which works with an EbixCash direct competitor.

We also reached out to fifteen (15) different Apollo Tyre outlets to learn how the company’s partnership with EbixCash has fared. None of the locations were even aware of the promotion. We also phoned Apollo’s head office where no one we spoke to could verify the existence of the cards.

Further, we spoke with a Travel Manager who works in administration. He told us “there is no scheme like that here with us in Delhi.”

Given the responses, the deals with Reliance and Apollo seem small at best, and provided little help in explaining Ebix’s massive sales growth in gift card revenue.

Ebix’s Key Gift Card Subsidiary Disclosed That 2 Customers Each Comprised Greater than 10% Of Revenue In 2021

Both No Longer Seem To Be Functional. The Top Customer Appears To Have Had An Undisclosed Relationship With the Entity

Ebix doesn’t disclose its top customers in its SEC filings, but we found them through Indian corporate filings.

Its EbixCash draft red herring prospectus shows that EbixCash subsidiary “Ebix Payment Services Private Limited” (formerly known as ITZ Cash Card Limited) is primarily engaged in the cash and gift card services business.[5]

Indian corporate records for the entity revealed its two largest independent customers as of fiscal-year end March 2021. Far from household names, they were (i) Prepay Payment Services and (ii) ePocket Online Payments.

Key Gift Card Customer #1: Ebix’s Top Gift Card Customer (“ePocket Online Payments Pvt Ltd”) Accounted for ~$46 Million (INR 35,604 Lakh) In Revenue to Ebix In Fiscal Year 2021

ePocket’s 2020 Financials Show Only $151 Thousand In Sales (And It Has Delayed Reporting Its 2021 Financials)

Indian corporate filings show Ebix’s key reported customer, ePocket Online Payment Pvt Ltd accounting for a massive U.S. $46 million in revenue for the fiscal year ending in March 2021. [Pg. 73]

This revenue claim by Ebix appears to stand in stark contrast to historical financial metrics reported by ePocket.

ePocket’s most recent annual report shows 2020 sales were INR 11,784,101 (U.S. ~$151 thousand) compared to 2019 sales of INR 50,788,899, representing a year over year decline of ~77%.

As of this writing, ePocket has not published its results for its 2021 fiscal year. The entity disclosed a reporting delay in its most recent September 2021 filing.

Key Gift Card Customer #1: ePocket’s Main Product Appears To Be An Android App With Minimal Traction, Just ~1,000 Total Installs And Only 5 Reviews on Google Play, The Last of Which Was From April 2018

We sought to learn more about ePocket’s key app. Given the recent surge of reported revenue from ePocket to Ebix, we would have expected a parallel surge in ePocket’s business. We found instead that its technology had virtually zero traction.

ePocket is a mobile app company founded in February 2015, according to Indian corporate records. The company’s main business claims to be a mobile eWallet app for bill pay, money transfers, and other wallet services, according to its website.[6] Its only app is an Android app available on the Google play store, according to the same website.

Note that Google’s Android OS has about 96% market share in India, according to mobile data aggregator Statista, making Google the most important OS for assessing user adoption.

The ePocket app has just 1,000+ total installs, according to the Google Play store, with only 5 reviews. Its last review was from April 2018, suggesting minimal use of the app over the past 4 years. Of the reviews that were available, they were all 5 stars and between just 1 and 3 words:

Key Gift Card Customer #1: We Visited ePocket’s Registered Address And Found A Small Empty Office In A Dilapidated Building

Our Investigator Was Told The Co-Owner Of The Business Had Died From COVID And the Flat Was For Sale

Indian corporate filings show the company’s registered address at Building No.4, Flat No.4, Shubham Park Uttam Nagar, Nashik.

We visited this address to get a sense of the scale of the operation that went from $151 thousand in 2020 revenue to suddenly driving $46 million in revenue to Ebix in 2021.

The office was empty and was in an extremely dilapidated building. Upon finding no one at the place of business our investigator made inquiries to people nearby and obtained a cell phone number of the owner.  Our investigator eventually found out that the co-owner had died from COVID and the flat was now for sale.

Key Gift Card Customer #1: We Suspect That ePocket Has An Undisclosed Relationship With EbixCash

The Entity Was Formerly Called “Itz Sales Private” But Changed Its Name 2 Months Before Ebix Bought Indian Payment Company “ItzCash”

As mentioned earlier, Ebix’s entry into the gift card business was driven by its May 2017 acquisition of 80% of a company called “ItzCash”. The ItzCash gift card business set the stage for EbixCash’s card product.

Now, Ebix’s largest claimed ‘independent’ gift card customer appears to have been related to ItzCash before its merger.

ePocket, which is now claimed to be a mobile app company, changed its name from “Itz Sales Private Limited” just 2 months before Ebix announced it was purchasing ItzCash. We found no other Indian entities with the similar naming convention aside from those controlled by Ebix.

Indian corporate records show that the renamed entity is owned by two individuals, indicating that whatever relationship it has with Ebix or EbixCash is not direct.[7]

Key Gift Card Customer #2: Indian Entity Prepay Payment Services Pvt Ltd, Accounted For U.S. ~$43 Million (INR 33,266 Lakh) In Revenue To Ebix In Fiscal Year 2021

The Entity Was Incorporated In 2018 And, After Just 3 Years Of Operations, It Reported A Massive $169 Million USD In Sales In 2021, According To Indian Filings

Indian corporate filings show Ebix’s key customer Prepay Payment Services Pvt Ltd accounted for U.S. $43 million in EbixCash revenue for the fiscal year ending in March 2021. [Pg. 73]

According to Indian corporate filings, Prepay Payment Services was incorporated on June 13th, 2018. By the fiscal year ending March 2021, it booked a massive U.S. ~$169 million in revenue, more than 5x the amount it had booked in the year prior.

Key Gift Card Customer #2: Despite Claiming That ~99% Of Its Revenue Is Derived From E-Commerce, The Entity’s Website Doesn’t Work

We Found No Employees On LinkedIn Or Any Significant Online Activity For The Company. Its Facebook Page Has Only 94 Followers And Appears To Have Been Abandoned In August 2021

Prepay Payment Services’ Indian financial statements show that almost 99% of the entity’s revenue is driven by “wholesale trade via e-commerce”.

A Google search for “Prepay Payment Services” yields virtually no results aside from its corporate registration. As described below, searches for the company’s apparent d/b/a name (“doing business as” name) of Paytekk Wallet were similarly fruitless. The entity appears to have no website and no other online presence.

The company has a LinkedIn page with 118 followers where it claims it has “50-200 employees”, but zero show up when searching for employees linked to the company.

Prepay operated under the brand name “Paytekk”, according to Indian corporate records, the company’s LinkedIn page, and its Facebook page. [1,2,3]

Per Paytekk’s Linkedin and Facebook pages, it seems the company’s only product is a gift card, similar to EbixCash’s.

Indian corporate records, LinkedIn and Facebook all show that the website for the entity’s brand is “paytekk.com”, but that website doesn’t seem to exist.

A search of internet archives also shows little evidence a site ever existed at that address, but for one small snapshot dated December 2021, which also fails to display a website.

Meanwhile, Paytekk’s Facebook profile had only 94 followers with virtually no engagement and no posts since August 2021, hardly the type of presence one would expect from a business exploding with revenue growth in the years after its inception.

Key Gift Card Customer #2: Prepay Payment Services Is Registered To A 525 Square Foot Office Space In Delhi

We Visited The Site And Found That The Business Is No Longer There

Corporate fillings for Prepay Payment Services show its address in an office building in Delhi. The record below is pulled from recent filings from March 2021.

A subsequent July 2021 rent agreement between Prepay and the landlord confirmed the address and also shows that the space is only 525 square feet, vastly smaller than what one would expect for a business generating $169 million in revenue with a claimed 50-200 employees.

We visited Prepay’s address, in a large office building in Delhi called RG Tower.

When we visited Unit #306 on the 3^rd floor, we found that it housed a completely different company called Facile Credit Solutions Pvt. Ltd, with no apparent ties to Prepay or EbixCash.[8]

The office next door appeared to be under construction.

Part II: EbixCash Claims To Have 650,000 Retail Outlets, Facilitating Its Sales Efforts. Evidence Suggests This Number Is A Massive Exaggeration

With key ‘corporate’ customers that seem to not actually exist, we sought to explore the other side of EbixCash’s business: retail.

EbixCash has claimed to have a massive retail distribution network of 650,000 physical distribution outlets in India, ostensibly giving it a major competitive advantage in its effort to sell cards directly to consumers.

Ebix Features A Branch Outlet In Its Corporate Presentation. We Visited And Found EbixCash Doesn’t Exist At the Location

The “EbixCash” Logo For The Claimed Branch Was Clearly Photoshopped

Our first hint that Ebix’s claims of having 650,000 retail outlets might be an exaggeration came from our review of EbixCash’s corporate presentation to prospective customers.

During our efforts over the past month to buy an EbixCash card (detailed later), a sales executive sent us a corporate presentation. It featured pictures of branch locations that displayed clear signs of photoshopping.

In the bottom picture in the slide, the signage, staircase, and even the potted plants for the claimed EbixCash location show clear signs of digital alteration.

We also visited the location in the top picture from the slide. Instead of being an EbixCash store, we found it housed an electric vehicle retailer that had been there for at least 2 years, we were told.

EbixCash doesn’t actually operate at the site, and the signage appears clearly photoshopped. Readers can match up the location claimed by Ebix and the one that we visited by their similar features:

EbixCash’s Subsidiary (Formerly Named “Itzcash”) Listed ~970 Supposed Independent Distributors On Its Website When It Was Acquired in 2017. We Called Every Single One Of Them

403 Did Not Pick Up. 527 Told Us They Didn’t Sell Ebix Cards. Only 40 (or ~7% of Those That Picked Up) Told Us They Sold EbixCash Cards

Many Who Sold EbixCash Cards Told Us They Sold Less Gift Cards Than Prior To The Pandemic, At Odds With EbixCash’s Claims

As noted earlier, EbixCash’s foray into the gift card business kicked off when it purchased Itzcash in 2017. At the time, the company reported a vast distribution network of 75,000+ retail outlets. Ebix has since claimed to have expanded that number over 8-fold to an astonishing 650,000 retail outlets.

It proved difficult to find any up-to-date list of Ebixcash agents, distributors or franchisees. We emailed EbixCash to see if they could share a distributor list. They acknowledged our email but didn’t respond to our request.

Instead, we found a list of ~970 separate distributors from the Itzcash website (the entity purchased by Ebix). We figured that the original distributor list, albeit somewhat dated, would be able to provide insight on the experience distributors had with the rebranded EbixCash during its claimed dramatic growth period.

We hired multiple Indian investigators who spoke both Hindi and English to call each distributor. Of the list:

• 403 (or 54%) didn’t pick up at all.
• 527 (or 93% of those who picked up) told us they don’t currently sell EbixCash/Itzcash cards.

Only 40 distributors (7% of those that picked up) told us they do sell EbixCash/Itzcash cards. When asked whether growth has increased since the pandemic, as Ebix has repeatedly claimed, most said sales have actually declined.

Some distributors shared that they had received complaints about EbixCash cards, ranging from problems getting the cards from EbixCash, a general lack of demand, poor customer service and competition in markets like railway tickets. Multiple distributors shared that they stopped selling the cards due to the issues.

We Also Found A List Of “Top EbixCash” Distributors via Justdial Profiles (A Search Platform Similar To Yellow Pages/Yelp In the U.S.)

Of The 500 Shops We Called, 203 Picked Up. Of Those, 2 Said They Still Sold EbixCash Gift Cards

One Told Us The Company Was “Useless”, Another Said They Had A Difficult Time Getting Cards From EbixCash

In our continued search to validate EbixCash’s claims of having 650,000 retail outlets; we found a large list of claimed distributors via Justdial, a popular online public business directory in India. Justdial displays a list of “top EbixCash distributors” which are mainly small shops in the Delhi area.

We called a sampling of 500 distributors from different cities on the Justdial list:

• 297 out of 500 (or 59%) didn’t pick up.
• Of the distributors that did pick up, 2 (or <1% of those who picked up) told us they sell EbixCash cards.

One former distributor said that he used to sell EbixCash cards, but stopped, saying the company was “useless” and that no one responded to his phone calls.

Another said he used to sell these cards 4 to 5 years back but was having a difficult time getting the cards from EbixCash, a complaint echoed by merchants on the ItzCash distributor list.

Overall, it seems the business has been in decline since its acquisition. Trust Research Advisory, a firm that ranks all Indian brands, ranked ItzCash as the 28th overall brand in the Banking, Financial Services & Insurance (BFSI) sector in 2017, the year of its acquisition. Neither Ebix nor Itz have appeared on the list since.

Given the above, we suspect the 650,000 number may be padded by acquired businesses with large retail footprints that are unlikely to explain the surge in gift card sales (e.g. Centrum, an Ebix acquisition that focuses on money transfers).

We Also Attempted To Purchase Gift Cards Directly Through The Company’s Phone Number And Found The Process Extremely Burdensome

We also decided to buy a card directly from EbixCash.  The company’s website shows a call center for purchasing general purpose reloadable cards.

We approached the company as individuals that wanted to try out prepaid cards for personal use or to offer them to a small business of 10-15 employees. The process was convoluted and incredibly difficult, echoing complaints from the numerous distributors and former distributors we spoke with.

Our eight (8) calls to EbixCash resulted in the following:

• Call #1: A customer service rep took our call and said a sales rep would call back. No one did.
• Call #2: Two days later we called again, and a customer service rep told us we would receive a call by end of day. We didn’t.
• Call #3: We called again after not receiving a call back. The customer service rep said it would take 2-3 days and asked for our information, which we provided. We were put on hold, then they hung up.
• Call #4: We called again and finally were given the number for a sales executive.
• Call #5: We called the sales executive, who eventually referred us to a different sales executive that managed our area, saying to use his name as a reference.
• Call #6: We spoke with the local sales executive who managed our area, who took down information on our needs and explained KYC protocols. He suggested he would come to our office to speak further but ended up referring us to another individual who sold Ebix cards in our area.
• Call #7: Finally, we spoke with a sales individual who sold prepaid Ebix cards in our area. He explained that he sells only virtual cards, not physical. When we asked about price, he explained the price but then immediately began pitching us on alternative prepaid cards from Equitas Bank and Yes Bank, which he described as much better because they can be used anywhere, as opposed to Ebix cards which are of limited use.
• Call #8: We ordered the card and transferred the money to the agent’s ICICI Bank account. He then sold us an Equitas card.  The agent tried to argue that in the previous conversation where he recommended Equitas over Ebix that we had agreed to take Equitas instead, which of course we didn’t.  As of the writing of this article we have been unable to get the agent to correct his mistake and sell us an Ebix card.

We had another investigator call the head office to request a card.  The second investigator was eventually couriered a physical card but when he tried to activate it and add money to it he was told it was the wrong card and had to wait for the correct card. 

As of the publication of this report the problem hasn’t been rectified. All told, our efforts to get a working card spanned 3 weeks and have thus far been unsuccessful.

Given the convoluted process to get even a single gift card operational we have a hard time imagining how gift cards could genuinely drive the majority of Ebix’s growth.

Part 3: Red Flags of Accounting Irregularities

Ebix has a long history of issues that collectively point to an organization with repeated accounting irregularities. A former executive of EbixCash we spoke with pinned these issues on Chairman & CEO Robin Raina, who tightly controls accounting decisions. We were told:

“The financial reporting was a very controlled thing. It’s very difficult for anybody running the company to have much visibility on the financial side. It’s very centrally controlled by Robin (Raina) and his close team. They’ve been working with him for a very very long time.”

Ebix Has Had 7 Different Auditors Since 2004, Including Several Who Resigned Or Did Not Stand For Reappointment, A Classic Hallmark Of Accounting Irregularities

A revolving door of auditors is a classic sign of accounting irregularities that we have seen countless times in companies we have investigated for wrongdoing.

In the case of Ebix, here is an abridged version of the auditors it has shuffled through in the last 2 decades:

• 2004: KPMG resigned as Ebix’s auditor and was replaced with BDO.
• 2007: BDO was dismissed “in an effort to control costs” and then replaced by Miller Ray Houser & Stewart LLP (later acquired by Habif, Arogeti & Wynne, LLP).
• 2008: Habif, Arogeti & Wynne, LLP informed Ebix that it wouldn’t stand for reappointment.
• 2009: Cherry, Bekaert & Holland, LLP was appointed, serving until 2018.
• 2018: T R Chadha & Co. LLP replaced Cherry Bekaert.
• 2019: RSM US LLP replaced T R Chadha & Co. LLP, but quickly resigned due to “unusual transactions related to the Company’s gift card business in India”.
• 2021: KG Somani & Co replaced RSM and performed the company’s 2020 and 2021 audits. [Pg. 55]

1997: Robin Raina Joined As VP At Ebix, And Became CEO Two Years Later In 1999

1998: During The Same Year That Raina Was Promoted To Senior VP Of Sales And Marketing, The Arthur Anderson Partner Overseeing Ebix’s Audit Signed Off On Fraudulent Statements For Ebix And Another Company, According to SEC Charges

The Audit Partner Allowed Ebix To Overstate Sales By ~18% In 1998 And Ignored Numerous Other Signs of Potential Fraud at Ebix, According to the SEC

Current Ebix Chairman/CEO Robin Raina joined Ebix in 1997. He was first promoted to Senior Vice President of Sales and Marketing in February 1998, then again to Executive Vice President, Chief Operating Officer in December 1998, before being appointed President in August 1999 and then CEO in September 1999. In less than 20 months, he was promoted 3 times and had made his way to the top position in the company. [Pg. 49]

Years after he joined the company, the SEC charged Ebix’s audit engagement partner over allegations of fraud involving Ebix and one other company. According to the SEC, the audit partner allowed Ebix to overstate its 1998 software sales by 17.8% by illegitimately booking disputed sales. The SEC alleged that the audit partner ignored numerous signs of possible fraud at Ebix, including (emphasis ours):

“During his audit work for the company, Putnam received indications of possible fraud at Ebix including earnings management, high involvement in accounting decisions by non-financial management, commitments made to analysts, the expectation of possible equity funding, the desire to maintain a high stock price, Ebix’s very aggressive accounting policies, and possible opinion shopping by Ebix among accounting firms, among others.” [Pg. 3]

Oddly, while the audit partner was charged for missing signs of fraud at Ebix, Ebix was not charged with committing fraud.

2013: Ebix Announced It Was Being Acquired By An Affiliate Of Goldman Sachs Through A Leveraged Buyout 

Within 45 Days, The Merger Was Terminated When Ebix Disclosed It Was Under Criminal Investigation By The US Department Of Justice, Following An Earlier Disclosure of an SEC Probe

In May 2013, Ebix announced that Goldman Sachs was taking the company private. Goldman bid $20/share, an 18% premium to the company’s average closing price over the prior 30 days.

Days before the merger was set to close, it was terminated when Ebix disclosed it had received notice from the US Department of Justice that it was under criminal investigation for intentional misconduct. This followed an earlier disclosure of an SEC investigation relating to its public statements to investors. [Pg. 21]

The SEC investigation was reported as having been closed in early 2017, and mention of the DoJ probe was removed from filings around the same time. [Pg. 20]

Part 4: EbixCash’s Technology Platform, Key To Its Strategy, Barely Works

EbixCash touts its strategy as being “phygital”, a combination of ‘physical’ and ‘digital’. As we have shown, its claims of having a sprawling physical presence with 650,000 retail outlets is doubtful.

Our review of the digital side of the business indicates that the company’s technology offering has already flopped. While Ebix has embarked on broad promotional efforts in Indian media, download and review metrics (and our own testing) show the product is nowhere near ready for the market, let alone a major IPO.

EbixCash’s Mobile App Is Key To Its “Omnichannel” Online Digital Platform, With Claims Of 1.5 Million Downloads

Ebix’s investor presentation and SEBI prospectus describe EbixCash’s mobile application as a core component of its strategy. Each has claimed the app has 1.5 million downloads to date. [Pg. 197]

Ebix’s website also repeats the same 1.5 million downloads claim, and links directly to the app, called “Money Transfer, Recharge, DTH, Bill Payment, Travel”.

Google Play Shows Only “100,000+” Downloads For the App

According To Google Play Reviews, The App Has an Atrocious 1.5 Star Average Rating Across 2,400 Reviews

Google’s Android OS has about 96% market share in India, according to mobile data aggregator Statista, making Google Play the key source for assessing claims of app downloads and user adoption in India.

When we investigated EbixCash’s app, we found Google Play reported it had less than 1 million downloads (“100,000+”).^[9]

The Google Play store also reveals an ocean of 1-star reviews for the app, with the most common complaints being that money is fraudulently stolen from users, customer service is terrible, and the app doesn’t work.

Based on user reviews, the app fails to deliver basic features, hardly a product ready for the market at all, let alone a major IPO.

EbixCash Claims To Be the Largest Player By Revenue In The Space, With 30% More FY 2021 Revenue Than Its Closest Competitor, PayTM

For Perspective, PayTM Has Over 100 Million Play Store Downloads (Over 100x EbixCash) And 13.3 Million Ratings (5,400x EbixCash) Averaging Around 4.5 Stars

EbixCash’s largest competitor in terms of revenue is PayTM, according to its prospectus.

PayTM is an Indian payments company backed by Warren Buffett that recently went public in November 2021. (The IPO flopped, opening below its issue price before closing down 27%, underscoring the difficulty of taking payment companies public in India, even under the best of circumstances. PayTM’s stock is now down ~60% since its IPO.)

The app dwarfs EbixCash in terms of user metrics and ratings, with over 100 million downloads and 13.3 million mostly positive ratings averaging average 4.5 stars.

EbixCash’s App Supposedly Offers Broad Services Like Bill Pay And Cab Hailing, According To Its Website

We Had An Indian Resident Test The App. He Couldn’t Get Any Feature To Work Except for Mobile Recharge

While Attempting To Get Bill Pay To Work, An EbixCash Rep Told Us That The eWallet Function Didn’t Work Because It Was “Under Maintenance”

Ebix claims on its website that its app provides a host of services that it expects will be utilized more and more as mobile adoption continues across India.

We hired an Indian resident to test the app. Confirming the atrocious reviews, he could not get the bill payment function to work and there was no option to book cabs.

We successfully charged a mobile phone but got the following error when trying to pay 2 different electric bills:

Next, we tried to pay a broadband bill and got the following error, even though the money was deducted from the investigator’s bank account

Next, we tried to pay for “DTH”, or “direct to home” streaming TV and got the message “No data found”

We also tried to pay a water bill and had the same result as with broadband: the money was deducted from the bank but the app showed the message: “your booking has been aborted”.

Finally, we tried to book a cab through the Ebix website since the app didn’t have the option. When we clicked on the cabs link it redirected us to ahataxis.com.  We tried to book 3 different cabs and each time when we got to the payment selection, we got the following error message:

We called customer support for help with these issues and the representative confirmed to us that the app only worked for mobile recharge. Here is the (translated) conversation:

Customer: “Ok. I wanted to ask one more thing. I also called to inquire about this 5-6 days back. Earlier when I was paying my bills, the mobile recharge was successful but broadband, postpaid, electricity and water bills were unsuccessful. So, they told me to add money in the e-wallet. But it was not working even after adding money to the e-wallet. So, is this app only for mobile recharge?”

Agent: “Yes sir, its only for recharge.”

Customer: “Ok. So, there is no other service available on this app?”

Agent: “No, because the wallet is under maintenance. So, no customers are able to use the wallet.”

Finally, to ensure we didn’t just happen to try the app during a time of a software glitch we once again tried to pay some bills this week (over one month after our first attempt) and had the exact same failures.

Conclusion: Ebix Seems To Have A Fake Revenue Problem

With its prior auditor resigning amidst alarm bells and the irregularities seemingly increasing, we think Ebix is trying to IPO EbixCash in a last-ditch effort to save itself. However, there are multiple indicators that the revenue attributed to EbixCash is grossly overstated. 

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.  Further, we have the following questions for Ebix:

• Will Ebix provide the full details on reasoning and correspondence with former auditor RSM when it resigned due to “unusual transactions related to the Company’s gift card business in India”?

• Will Ebix provide a list of its top customers by revenue, particularly those in its gift card business?

• Did Ebix Photoshop a picture of a branch outlet in its corporate presentation? Has it ever had an office at that address?

• 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?

To date, Ebix has tumbled forward on flamboyant marketing and a cult of personality around its founder. 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.

Disclosure: We are short shares of Ebix, Inc. (NASDAQ: EBIX)

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^[1] Note: Ebix switched to reporting non-GAAP net income in 2018, as denoted on the slide.

[2] Other media reported the value even higher, around $5 billion

[3] Ebix has determined it is principal in its gift card transactions, and books gift card revenue on gross value of gift cards sold. This accounting treatment allows the company to book massive revenue on sales that have razor-thin profit margins, and therefore have little impact on its bottom-line. [Pg. 66]

[4] Ebix’s filings characterize its “payment solutions” division as increasing “more than $200 million”, to $256 million, representing 590% YoY growth, in 2020. [Pg. 20] While it didn’t report the 2019 metrics, backing out the 590% YoY growth figure results in ~$37.1 million in “payment solutions” revenue for 2019 and ~$219 million in 2020.

[5] Ebix has at least one other subsidiary that sells gift cards, EbixCash World Money. Based on the EbixCash Red Herring prospectus, the entity has a relationship with MasterCard. [Pg. 226] The FY 2021 reported net revenue for the entity was U.S. $10.6 million (INR 8,271.60 Lakh), suggesting a minimal contribution. [Pg. 38]

[6] Note that another company with a similar name and service offering seems to be run by a different company called “Emantor Technoedge”. The company also has an app on Google play with even less engagement than ePocket, with only 100+ downloads and 2 reviews. Oddly the app developer is listed as ePockets Technology Pvt Ltd, which is either a mistake or indicates that ePocket has another app with even fewer downloads than its other sparsely downloaded app.

[7] The two individuals are Ashwini Manish Auti and Dilip Vasant Auti, per Indian corporate records.

[8] Indian corporate records show that Facile’s shareholders are two individuals, Pankaj Kumar Jain and Jyoti Rani, with no obvious ties to Prepay. This is further corroborated by the registered address of Facile Credit Solutions

^[9] Also there is little sign of activity on the Apple store, where it shows a 1.7 out of 5 rating. As of this writing there were 39 ratings and just 10 written reviews.