Leading market player with strong fundamentals
As of March 31, 2021, CMS is India’s largest cash management company based on number of ATM points and number of retail pick-up points and has a market share of 24.7%, based on the total number of ATMs in India, as well as a market share of 41.1%, based on the total number of outsourced ATMs in India. For Fiscal Year 2021, their total currency throughput, or the total value of the currency passing through all of their ATM and retail cash management businesses, amounted to ~Rs 9,159 billion. The market share of the 2 largest ATM cash management companies, one of which being CMS (other being Securevalue India), has increased from 60% in Fiscal Year 2018 to 72% in Fiscal Year 2021, while the number of cash management companies with over 5% market share has decreased from 6 to 4. In addition, 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.
Pan-India footprint with deep penetration in growing markets
Company’s pan-India fleet of 3,965 cash vans and their network of 238 branches and offices cover all of India’s states and union territories. CMS is among the first cash management companies to invest in the growth of their business in rural and semi-urban areas in India, and their pan-India footprint enables them to offer services to customers in these areas. Company’s platform offers customers a single point of reference across India for their operations, as well as an integrated service offering. Their knowledge of the markets in which they operate, enables them to provide their customers with better quality services that are customized to their needs.
Integrated business platform offering a broad range of services and products
CMS has a track record of successfully incubating and building multiple new service lines, which has allowed them to offer their customers a broad range of services and products, as well as realize synergies within their business. In 2019, they entered the multi-vendor software solutions segment and are now a leading player for multi-vendor software opportunities in India. They also entered the remote monitoring segment in 2021 and have an order book for 14,920 ATM sites as of July 31, 2021. With their expanded service and product offering, they are present in all major market segments in the cash management and ATM managed services industry, which means they can offer integrated services to customers and provide them with 'one-stop' solutions, which also provides the company with a competitive advantage for future projects.
Systems and processes to manage and scale an operationally complex business
To maximize the scalability of their operations, they leverage customized systems and processes that are designed around internally developed applications tailored to cater to the specific requirements of the Indian banking sector and their other customers. They have implemented technology platforms, such as CMS Connect, which facilitates critical processes in ATM operations, and CMS ALGO, their fully automated, mobility based, ATM security application, which reduce the time spent on pre- and post-route activities and during first line ATM maintenance calls and replenishments, respectively. They have also developed and implemented AGILE, which is a risk management solution that tracks, reconciles, and resolves reconciliation issues between them and their customers. As market share and sales volumes for the company increases, these operating resources can often be deployed more efficiently, and margins can be improved.
Decrease in the use of cash as a mode of payment:
Increase in the use of cashless payment methods or decline in the use of cash as a mode of payment could result in the company customers having less need for cash management services and managed services.
High revenue concentration from top clients
Revenue contribution from top 5 customers was 48.3%/55.79%/55.73% during FY19/20/21. If one or more of the company’s key customers were to suffer deterioration in their business, cease doing business with CMS or substantially reduce its dealings with CMS, the company revenues could decline.
Change in existing laws & regulations or the introduction of new ones:
The businesses of certain customers of CMS are regulated by the RBI and the GoI, and hence, CMS’s business can be affected by any change in policies, decisions, and frameworks of the RBI and the GoI that relate to those customers.
The issue is purely an OFS:
The issue is purely an OFS and company will not get any capital from this issue. All proceeds will go to such selling investors.
CMS Info Systems Ltd. (CMS) is India's largest cash management company based on the number of ATM installations and the number of retail pick-up points. It is also one of the largest ATM cash management companies worldwide based on the number of ATM points. CMS has pan-India fleet of 3,965 cash vans and the network of 238 branches and offices accounting for 2.62% of revenue for 5 months ended August 31, 2021.
CMS operates their business in 3 segments:
Cash management services: The Company offers end-to-end ATM replenishment services, cash pick-up and delivery, network cash management and verification services. This segment accounted for 66.74% of total revenue for 5 months ended August 31, 2021.
Managed services: The company offers a range of services that includes deployment of ATM machines & associated maintenance to setting up the entire ATM site infrastructure, including a complete line maintenance service for these machines. This segment accounted for 30.64% of total revenue for 5 months ended August 31, 2021.
Others: The Company provides end-to-end financial cards issuance and management for banks and card personalization services.
CMS is the leader in the cash management services segment in India. The company has managed to deliver consistent growth in its business except for the pandemic year while maintaining profitability margins. However, with increasing use of digital payments and RBI promoting digital payments, cash management services segment could face growth challenges (~67% of revenues for 5 months ended August 31, 2021). Also, the issue is purely an OFS with no capital flowing into the company. At the upper price band of Rs 216, we believe the IPO is fairly priced at ~19x FY21 earnings. Hence, we recommend investors to “AVOID” subscribing to the IPO.
Use of Proceeds:
The total issue size is of Rs. 1,100 crore is fully an OFS constituting offer for sale of up to 5.09 crore equity shares by investors. Company will not get any capital from this issue. All proceeds will go to such selling investors.
Book running lead managers:
Axis Capital, DAM Capital, Jefferies India, JM Financial
The Promoter of the company is Sion Investment Holdings Pte. Limited (“Sion”) (The ultimate promoter of Sion is Baring Private Equity Asia GP VI Limited). Rajiv Kaul is the Executive Vice Chairman, Whole Time Director and CEO of the company. He has been associated with the company since July 1, 2009. He is currently heading the Company and is responsible for the overall management of the company. He has over 24 years of experience across technology, private equity, and cash management industry.
|Yr End March (Rs Cr)||FY19||FY20||FY21|
|Purchase of goods||100.60||181.50||207.00|
|(Increase)/decrease in inventories||-11.40||9.90||-27.30|
|Depreciation & Amortization||53.70||56.60||63.50|
|Interest & Finance Charges||7.40||7.30||8.20|
|Profit Before Tax - Before Exceptional||149.80||194.80||237.70|
|Effective Tax rate||36.00%||31.00%||29.00%|
|Net Profit Margin||8.00%||10.00%||13.00%|