CMS Info Systems Limited

About the company:

Issue Details

Dates: 21st December, 2021 to 23rd December, 2021

Price Band: Rs. 205 to Rs. 216 per share

Minimum Lot: 69 shares

Minimum Application Amount: Rs. 14,145 to Rs. 14,904

Total Issue Size: Up to Rs. 1100 crores (OFS of Rs. 1100 crores)

Objects of the offer

The objects of the offer are to achieve the benefits of listing the equity shares on the stock exchanges, enhance the company’s brand name and provide liquidity to the existing shareholders.

Corporate Profile & Business overview

CMS Info Systems is India's largest cash management company in terms of ATM points and retail pick-up points as of March 31, 2021, and one of the leading ATM cash management companies in terms of ATM points globally as of March 31, 2021. Total currency throughput, or the total value of currency moving through all of ATM and retail cash management operations, was $9,158.86 billion in Fiscal Year 2021. The company's services include installing, maintaining, and managing assets and technological solutions for banks on an end-to-end outsourced basis under long-term contracts.

As of August 31, 2021, the company had a pan-India fleet of 3,965 cash vans and a network of 238 branches and offices covering all of India's states and union territories, with the exception of the distant union territory of Lakshadweep. CMS also supported more than 141,977 business points through its network throughout their ATM cash management, retail cash management, and managed services businesses.

The company's integrated business platform is supported by customised technology and process controls, allowing them to offer a wide range of tailored cash management and managed services solutions to their customers while generating cross-selling opportunities and driving synergies and efficiencies across their business. They meet a wide range of outsourcing needs for banks, financial institutions, organised retail, and e-commerce businesses in India.

The company operates its business in three segments:

·       Cash management services: End-to-end ATM replenishment services; cash pick-up and delivery; network cash management and verification services (collectively known as "retail cash management services"); and cash-in-transit services for banks accounted for 68.61% and 66.74% of revenue from operations in Fiscal 2021 and the 5 months ended August 31, 2021, respectively, and grew at a CAGR of 0.31% from Fiscal Year 2019 to Fiscal Year 2021.

·       Managed services: This includes banking automation product sales, deployment, and associated annual maintenance; end-to-end Brown Label deployment and managed services for banks; common control systems and software solutions, including multi-vendor software solutions and other security and automation software solutions; and remote monitoring for ATMs, accounting for 27.88% and 30.64% of its revenue from operations in Fiscal 2021 and the five months end August 31, 2021, and grew at a CAGR of 35.88% from Fiscal Year 2019 to Fiscal Year 2021

·       Others: which includes end-to-end financial cards issuance and management for banks and card personalization services, accounting for 3.51% and 2.62% of revenue, respectively, from operations in Fiscal 2021 and the 5 months ended August 31, 2021.

Financials

^Not Annualized 

Between Fiscal 2019 and Fiscal 2021, company’s revenue has grown at a CAGR of 30.72% from FY19-21. The revenue mix for H1FY22 is comprised of sale of product (90.65%) and sale of service (9.35%).

The company’s EBITDA margins for Financial Years 2019, 2020 and 2021 were 18.42%, 18.72% and 23.69%, respectively, with EBITDA growing at a CAGR of 21.07% from FY19-21. 

PAT in Financial Years 2019, 2020 and 2021 were Rs. 96.41 crores, Rs. 134.71 crores and Rs. 168.52 crores, respectively, growing at a CAGR of 32.21% during this period, with PAT margins of 8.41%, 9.47%, and 12.90% respectively.

Key Strengths

·        India’s largest cash management company based on number of ATM points and number of retail pick-up points. The size and wide reach of their network enables them to realize further economies of scale, allowing them to increase the productivity of their operations and their profit margins

·       The company has Pan-India footprint with fleet of 3,965 cash vans and their network of 238 branches and offices based on the numbers as of August 31, 2021, cover all of India’s states and union territories, except remote union territory of Lakshadweep, 97.04% of India’s districts and 77.46% Indian postal codes and has a deep penetration in growing markets

·        Longstanding customer relationships leading to increased business opportunities

·        Integrated business platform offering a broad range of services and products operationally

Key Risks

·        With growing digital payments, decrease in the use of cash as the predominant mode of payment in India could have an adverse effect on company’s business

·        Highly dependent on the banking sector in India and any adverse development with respect to Indian banks that adversely affects their utilisation of and demand for cash management services or their deployment or utilisation of ATMs could have an adverse effect on company’s business

·       Company derives a substantial portion of its revenue from a limited number of customers. 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

Valuation & Conclusion

*P/E has been calculated based on the closing market price of equity shares on NSE on December 17, 2021.

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

According to the offer document, the company mentions SIS Ltd as a peer, however the two 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.

The company is India's largest cash management company, and it had a remarkable business performance in 5MFY22, with substantial rise in EBITDA and PAT margins, which management feels is sustainable. Furthermore, the company has a decent headroom for growth as the ATM market is predicted to increase at a CAGR of 6.16 % from March 2021 to March 2027. However the key risk is the high client concentration – top 3 customers contributing to 44.59% of revenues and the largest customer contributing to 18.78% of their revenue. This large contribution from the top clients makes the company’s performance highly dependent of its key customer and exposes the revenues to risk. The company also faces the risk of increased digital payment adoption, and given the current market sentiment, it may be unable to offer 'listing gains' to subscribers. Furthermore, the issue is entirely an OFS, and the funds obtained will not be used by the company. Considering the above factors, we advise investors to ‘SUBSCRIBE with Caution’ to this IPO.