AGS Transact Technologies Ltd

About the company:

Issue Details

Dates: 19th January, 2022 to 21st January, 2022

Price Band: Rs. 166 to Rs. 175 per share

Minimum Lot: 85 shares

Minimum Application Amount: Rs. 14,875

Total Issue Size: Up to Rs. 680 crores (The issue is 100% Offer for Sale)

Objects of the offer

(i) Carry out the offer for sale by the Selling Shareholders (ii) To realize the benefits of listing of the Equity Shares on the Stock Exchanges, enhancement of our company’s brand name and creation of a public market for the Equity Shares in India

 
Use of proceeds by Mr. Ravi B. Goyal (Promoter Selling Shareholder): Mr. Ravi B. Goyal proposes to primarily utilize his respective portion of the Offer proceeds to purchase the VEPL CCPS from the company and the company proposes to primarily utilize the proceeds from such sale of VEPL CCPS to redeem the listed NCDs.

Corporate Profile & Business overview

AGS Transact Technologies is one of the largest integrated omni-channel payment solutions providers in India in terms of providing digital and cash-based solutions to banks and corporate clients, as of March 31, 2021. (Source: Ken Payments Report).They provide customized products and services comprising ATM and CRM outsourcing, cash management, and digital payment solutions including merchant solutions, transaction processing services, and mobile wallets.

 
As of March 31, 2021, they were the 2nd largest company in India in terms of (i) revenue from ATM managed services under the outsourcing model, and (ii) revenue from cash management and the number of ATMs replenished. (Source: Ken ATM Report). The company has expanded internationally to offer automation and payment solutions to banks and financial institutions in other Asian countries comprising Sri Lanka, Singapore, Cambodia, Philippines, and Indonesia.

As of August 31, 2021, they had installed, maintained, or managed a network of approximately 72,000 ATMs and CRMs, provided cash management services to 46,214 ATMs through SVIL, installed 221,066 merchant POS and approximately 46,800 cash billing terminals, automated approximately 17,924 petroleum outlets and installed approximately 88,521 colour dispensing machines.

The company operates in 3 broad business segments:

Payment Solutions: ATM and CRM outsourcing and managed services, cash management services, iCDs, digital payment services which include toll and transit solutions, Fastlane, transaction switching services, services through POS machines and agency banking. Revenue from Payment Solutions segment accounted for 76.8% and 74.5% of revenue from operations in Fiscal 2021 and the 5 months ended August 31, 2021, respectively.

Banking Automation Solutions: Sale of ATMs and CRMs, currency technology products, and self-service terminals, and related services and upgrades. Revenue from Banking Automation Solutions segment accounted for 9.1% and 13.8% of revenue from operations in Fiscal 2021 and the 5 months ended August 31, 2021, respectively.

Other Automation Solutions: Sale of machines and related services to customers in the retail, petroleum, and colour sectors. Revenue from the Other Automation Solutions segment accounted for 14.13%and 11.68% of revenue from operations in Fiscal 2021 and the 5 months ended August 31, 2021, respectively.

Financials

^EPS for the five months period ended 31 August 2021 is not annualized

The company’s RoNW is on a downward trajectory at 10.29% in FY21 from 15.91% in FY19. Its revenue from operations had been subdued over the last 3 years and the company witnessed a dip of 2% to Rs. 1,758.94 crores in FY21 from Rs. 1,800.44 crores in FY20. EBITDA margins have remained in the range of 24-26% for FY19-21.

 
PAT declined by 34% to Rs. 54.79 crores in FY21 from Rs.83.01 crores in FY20. Moreover, for the five months period ended 31 August 2021, it reported a loss of Rs. 18.11 crores.

Key Business Strategies

· Focus on Growing their Digital Payment Solutions Business

· Pivot from Payments-as-a-Service to Payments-as-a-Convenience through their Ongo Card and Ecosystem

· Focus on ATM and CRM Outsourcing and Managed Services

· Focus on Cash Management Services

· Expand Internationally

Key Risks

· Highly dependent on the banking sector in India and any adverse development in the growth of the number of ATM or the usage of ATMs in India could have an adverse effect on company’s business

· Company derives a substantial portion of its revenue from a limited number of customers. Top 10 customers contributed 62.8% in FY21. If one or more of key customers were to suffer a deterioration in their business, cease doing business with it or substantially reduce its dealings, company’s revenues could decline

· A decrease in the use of cash as a mode of payment could have an adverse effect on the company’s business

· The business of supply, installation and maintenance of ATMs is highly regulated by RBI. Any restrictive/adverse change could affect the industry and operations of the company

 
Valuation

*P/E has been calculated based on the closing market price of equity shares on NSE on January 18, 2022.

**P/E has been calculated as per the upper price band of the issue

 
According to the offer document, the company has no listed peers and thus these companies are not comparable on an apples-to-apples basis, hence the valuation comparison may not be a very effective way of judging whether the IPO price is expensive or reasonable.

Conclusion

AGS Transact Technologies has established a leadership position in the Indian ATM industry with a diversified product portfolio, customer base, and revenue streams leading to cross-selling opportunities for the company. There are different positives that are in favour of the company such as healthy traction and growth outlook for CRMs (Cash Recycling Machines), increase in ATM interchange fee, and new ATM cassette swap guidelines opening up incremental revenue opportunities. However, the revenue outlook for the company doesn’t seem to be very promising. ATM managed services business growth projections are modest with an FY23E-26E expected CAGR of 4.8% whereas the cash management services are forecasted to grow at a CAGR of a mere 2.2% over the same period. As far as the financial track record is concerned, the company has not shown healthy revenue and profitability growth over the last 3 years and its net cash flows from operating activities have been on a decline. Its return ratios are also dipping.

Considering the above factors in addition to the risks outlined in this note, we advise investors to ‘AVOID’ this IPO currently till a clear path of revenue growth is established.