CMS Info Systems IPO Note

CMS Info Systems IPO

IPO
by 5paisa Research Team Last Updated: 2021-12-23T18:21:11+05:30

IPO Synopsis

CMS Info Systems is raising Rs 1,100 crore via a public issue. The issue comprises of offer for sale by its promoter, Sion Investment Holdings Pte, an affiliate of Baring Private Equity Asia.
The price band for the issue is fixed at Rs. 205 - Rs. 216 per share. 
The minimum bid size is 69 shares (1 lot) and requires a minimum investment of Rs. 14904. The maximum a retail investor can apply for is 13 lots which requires an investment of Rs. 1,93,752. 
The face value of each share is Rs. 10. The issue will open on 21st December and effectively close on 23rd December.
CMS Info Systems' grey market premium (GMP) was steady at Rs. 30 on Monday. It saw applications for 70,13,850 shares against the offer size of 3,75,60,975 shares, translating into a subscription of 19 per cent so far. According to the data from BSE, the portion reserved for retail bidders was subscribed 37 per cent, whereas HNI and institutional portion were yet to fetch any bids.
50% of the offer is reserved for qualified institutional buyers, 35 percent for retail investors, and the remaining for non-institutional investors.
Axis Capital, Dam Capital Advisors, Jefferies India and JM Financial are the book running lead managers to the issue.

Objective of the Issue


The net proceeds from the issue will be utilised:
•    To carry out the offer for sale of equity shares by the promoter selling shareholder aggregating up to Rs. 1,100 crores
•    To achieve the benefits of listing the Equity Shares on the Stock Exchanges

About the Company 


CMS offers ATM and cash management, ATM installation, maintenance and card personalisation services. Over the past decade, the company has been owned first by Blackstone, in 2008, and in 2015, it was taken over by Baring, which bought the company for about Rs. 2,000 crores. 
The integrated business platform is supported by customised technology and process controls, offering customers a wide range of tailored cash management and managed services solutions, while generating cross-selling opportunities and driving synergies and efficiencies across the business
The firm operates its business in three segments: 
•    Cash management services which include 
     o    end-to-end ATM replenishment services
     o    cash pick-up and delivery; network cash management and verification services
     o    Inter-branch and currency chest cash-in-transit services for banks. 
     o    accounting for 68.61% of revenue from operations in 2021 and growing at a CAGR of 0.31% from 2019 to 2021
     o    On average, CMS manages Rs. 5,000 crore of cash a day in India. 

•    Managed services, which include 
     o    banking automation product sales and service sale 
     o    end-to-end brown label ATM and managed services for banks
     o    common control systems and multi-vendor software solutions remote monitoring for ATMs and bank branches
     o    accounting for 27.88% of revenue from operations in 2021 and growing at a CAGR of 35.88% from 2019 to 2021
•    Others, which include 
     o    end-to-end financial cards issuance and management for banks  
     o    card personalization services
     o    accounting for 3.51% of revenue from operations in 2021
The firm provided services to its customers though Pan-India fleet of over 3,911 cash vans, 224 branches and offices and it serviced 1,33,458 business points. Thus, covering all of India’s states and union territories, except remote union territory of Lakshwadeep, 96.36% of India’s 741 districts and over 15,000, or 78.63%, Indian postal codes, including difficult to reach and remote rural and semiurban areas, 
The cash management business is route-based in nature with 78.11% of revenue in FY21 being generated from activities while the managed services business on the other hand is largely recurring in nature with 52.45% of revenue in FY21 being generated from long-term contracts.
The integrated service and product offering has enabled the firm to shift the business mix towards providing more integrated end-to-end services for the customers, offering the customers lower price, more reliable service, improved advance planning of routes, faster reconciliation and improved days sales outstanding.

Shareholding Pattern

Entity/Person

Number of Shares

% of Share Capital

Baring Private Equity Asia VI Holdings Pte. Limited

2,723,285 ordinary shares and 216,605,176 preference shares

100%

 

Financials

Particulars (in Rs. Crores)

FY21

FY20

FY19

Revenue

1,306.09

1,383.24

1,146.16

EBITDA

309.44

258.96

211.09

PAT

168.52

134.71

96.14

EPS (basic in Rs.)

11.39

9.1

6.5

ROE

17%

16%

13%

 

 

Particulars (in Rs. Crores)

FY21

FY20

FY19

Total Assets

1,611.81

1,332.74

1,092.70

Share Capital

148.00

148.00

148.00

Total Borrowings

0.00

0.00

0.00

 

Particulars (in Rs. Crores)

FY21

FY20

FY19

Net cash generated from / (used in) operating activities

185.44

214.16

101.78

Net cash from / (used in) investing activities

-149.34

-119.44

6.19

Net cash flow from / (used in) financing activities

-61.72

-57.62

-52.40

Net increase (decrease) in cash and cash equivalents

-25.62

37.10

55.58

 

Strengths

•    Leading player in a consolidating market with strong fundamentals
The industry it operates in is consolidating due to changes in regulations to ensure that cash management  companies  meet certain operating standards and trends in customer preference favouring larger cash management companies with more scaled and stable operations. Even then, CMS Info Systems’ wide network allowed it to expand further across the country becoming the one of the top two companies in Cash Management segment. In addition, as the demand for cash and cash-related services in India has increased as banks and other participants in India are outsourcing their cash management needs. The total value of the currency passing through all of the firm’s ATM and retail cash management businesses, amounted to Rs. 9,158.86 billion.

•    Pan-India footprint with deep penetration in growing markets
Pan-India fleet of 3,911 cash vans and network of 224 branches and offices based on the numbers for 2021, cover all of India’s states and union territories, except remote union territory of Lakshwadeep, 96.36% of India’s districts and 78.63% Indian postal codes, including difficult-to-reach and remote rural and semiurban areas, such as the India-Pakistan and India-China border regions, villages in remote regions in the Himalayas, the Andaman and Nicobar islands, border towns in Kutch, and remote towns in North East India. Government's financial inclusion programs, including Pradhan Mantri Jan Dhan Yojana and other direct benefit transfers, provide direct benefits and subsidies to populations in semi-urban and rural areas and are expected to result in an increase in cash withdrawals and a higher demand for ATMs

•    Longstanding customer relationships leading to increased business opportunities
In Fiscal Years 2019, 2020 and 2021, the company generated at least Rs. 20.0 crores in revenues. In addition: 
     o    in ATM cash management business, the firm has six of the 12 largest MSP customers for more than ten years and four additional customers for more than five years. Firm’s contracts with these customers typically range from one to five years
     o    in the retail cash management business, the firm has nine largest customers for more than 10 years. Contracts with these customers typically range from one to five years.

•    Integrated business platform offering a broad range of services and products
The company has a track record of successfully incubating and building multiple new service lines, allowing to offer the customers a broad range of services and products. The company entered a multi-vendor software solutions segment and is now a leading player for multi-vendor software opportunities in India. The company also entered the remote monitoring segment in 2021 and has an order book for 14,920 ATM sites in July 2021 based on two contract wins of 9,520 and 5,400 ATMs, respectively.
•    Systems and processes to manage and scale an operationally complex business
As market share and sales volumes increase, operating resources can often be deployed more efficiently and margins can be improved. India’s largest cash management company based on number of ATM points and number of retail pick-up points. The firm has serviced 52,691, 58,458 and 62,919 ATM points, respectively, through its ATM cash management services, and 41,836, 44,497 and 40,249 retail pick-up points, respectively, through its Pan-India fleet. In order to maximize the scalability of operations, customised systems are leveraged and processes that are designed around internally developed applications tailored to cater to the specific requirements of the Indian banking sector and other customers.
•    Track record of strong productivity and operational excellence
The firm has actively worked to increase its profitability and the efficiency with which they deploy resources by: 
     (i)    increasing the density of stops in the routes of cash vans
     (ii)    leveraging the fixed costs of cash processing infrastructure
     (iii)    introducing other efficiencies, such as by standardizing and automating processes

 

Strategies

•    CMS platform offers customers a single point of reference across India for their operations. Its integrated offerings and knowledge of the markets and regional requirements in which they operate enable them to provide customers with better quality services that are tailored to customers’ needs and offer them a single-point solution for a variety of their outsourcing needs. 
•    CMS plans to acquire and incubate new relevant businesses and scale them up where they find opportunity for potential growth. In 2017, they acquired the business of a small Brown Label ATM services company. Currently, as the industry is consolidating with increased competition, the firm is looking for opportunities that consolidate their market position in existing businesses.
•    CMS currently provides a wide range of services across each stage of the entire cash cycle in India and assist customers to meet their outsourcing needs and increase the speed with which they handle cash by automating and decreasing duplication in the processing and turnaround of cash. Many banks are outsourcing their ATM servicing requirements on an end-to-end basis, and since they are present across the entire ATM and cash management value chain, they can offer their customers integrated service and product offerings to meet their needs. 
•    The company identified and is in the process of expanding other new business areas:
      o    Remote Monitoring - leverage the remote monitoring technology to differentiate its product offering and target sectors beyond only the ATM and banking sectors,
      o    End-to-end currency management – for banks include cash processing at currency chests for counting, sorting, checking note fitness, packaging, among other services and end-to-end management of currency chest for banks and NBFCs, including providing manpower and transport at various locations;
      o    Payment Solutions – The firm intends to use banking relationships and technology capabilities to develop and commercialize a wide-array of differentiated payments solutions, including bill payments, POS networks, digital payments and other merchant payment solutions, and micro-ATM offerings
      o    Financial services distribution – A key focus of business strategy is financial services distribution, which includes corporate business correspondent ("CBC") services, such as cash withdrawals and deposits, payments, KYC, account opening, retail payments, among other things. Fulfilment of financial services on behalf of banks and NBFCs by leveraging existing infrastructure in order to fulfil financial services being offered by banks and NBFCs, such as on demand pickup and doorstep banking services, NBFC soft loan collections and disbursements.

Competition
 
The cash management industry has been consolidating globally, driven primarily by the need for scalability and operational efficiencies. Specifically, in India, the cash management industry is undergoing a maturing process, resulting in consolidation among existing industry participants. Another driver for consolidation was customers’ migration towards more established and well-capitalized service providers who focus on risk and operational management and regulatory compliance in the industry.
Competition in the industry is based on a number of factors, including quality of service, price, ATM uptime, scale of distribution and service networks, scope of services, geographic locations, reliability, customer reporting and relationships and contract length.


Competitors in different Segments

Cash Management

ATM Cash Management

AGS

Writer Safegaurd

Retail Cash Management

Brink's

Radiant Cash Management Services

Writer Safeguard

Cash-in-cash

SiS Prosegur

Checkmate

 

Managed Services

Managed Services

Brown Label ATM

Hitachi

AGS

Euronet

FIS

FSS

 

Others

Automation product sales and solutions

 NCR

Hitachi

Oki

Software and Technology

NCR

KAL

 

Peer Comparison

Name of the company

Total Revenue (in Rs. crores)

Basic EPS

NAV Rs. per share

PE

RoNW %

CMS Info Systems

1,321.92

11.39

66.52

NA

17.12%

SIS Limited

9,605.10

24.85

123.45

19.1

20.06%

 

Risks

•    Decrease in the availability or use of cash as the predominant mode of payment in India

Business and Results of operations are significantly dependent on the use of cash remaining the predominant mode of payment in India. The use of cash as the predominant method of payment in India has historically been driven primarily by consumer and retailer preferences for cash. e RBI and the GoI have publicly stated that they are undertaking initiatives to encourage greater adoption of electronic and cashless payment methods, which could reduce the amount of cash in circulation and the use of cash as the preferred mode of payment in India.
•    High dependency on banking sector, thus, any adverse development within Indian banks that affects their utilisation of and demand for cash management services or their deployment or utilisation of ATMs will affect the business operations
•    A substantial portion of its revenue from a limited number of customers
For 2019, 2020 and 2021, top three customers in terms of revenue contributed 31.93%, 42.33% and 42.36%, respectively. However, the largest customer is a public sector bank who contributed 10.07%, 23.45% and 17.90% in 2019, 2020 and 2021, respectively.
The loss of any of key customers, due to inability to renew contracts with them or failure to secure a large order from them, or a decision by any one of them to reduce the services it provides to them would result in a decline in revenues.
•    Significant expenses in relation to services procured from third parties to maintain the ability to competitively price services, maintain or increase the profitability and results of operations
If the firm is unable to pass on any increase in the costs that it incurs from third-party service providers for the services they procure from them, it would hurt the margins, profitability and results of operations. Further, if the services from the third party are not procured in a timely manner, operations would suffer, impacting the profitability and results of operations.
•    Repetition of events similar to demonetization will have immediate effect on the business
The process of demonetisation and replacement of high denomination notes significantly reduced the liquidity of cash in the Indian economy. This was particularly the case in rural and semi-urban regions of India. The cash management industry, together with CMS Info Systems, was significantly impacted as the circulation of cash decreased, and delays in recalibrating ATMs resulted in a large number of ATMs being temporarily inaccessible. Further, during this time the retail cash management services business was also impacted, as the demand of the retail customers decreased.
•    Failures of its information technology system
The success of the businesses depends in part upon effectively deploying, implementing and using information technology systems and advanced technology initiatives in a cost effective and timely basis.
Any disruptions or other problems occurred within the information technology systems, or in connection with the interaction between the information technology systems and those of the customers or other third parties, then the ability to service customers, conduct and manage the business would be affected, resulting in losing contracts and incurring remedial costs, penalties and expenses.

•    Business is subject to the risk of criminal attacks of various types by third parties, including armed robbery, theft and fraud.
The business involves handling large volumes of cash, hence it is exposed to various security risks and crimes including armed robbery, theft, fraud, embezzlement and other forms of illegal conduct. Criminal attacks against the business range from attacks by armed individuals at drop-off and pick-up points, in transit, or while cash is being carried outside of cash vans or branches, to third parties gaining access or being given access to facilities, vaults or ATM sites and taking cash. The guns used by thirdparty security service providers could be stolen during criminal attacks and misused. Criminal attacks may also involve cyber-attacks against information technology systems, significantly disrupting of operations.

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