CMS Info Systems Limited IPO : Outlook & Valuation

In December, CMS Info Systems Limited IPO was listed. Incorporated in 2008, CMS Info Systems Limited is India's largest cash management company in terms of the number of ATM points and retail pick-up points as of March 31, 2021.

The company is engaged in installing, maintaining, and managing assets and technology solutions on an end-to-end outsourced basis for banks, financial institutions, organized retail as well as e-commerce companies in India.

CMS Info Systems Limited Business Operates in 3 Segments:

1. Cash management services.
2. Managed services i.e. banking automation product sales, common control systems, and software solutions, etc.
3. Others i.e. financial cards issuance for banks and card personalization services.

In the first place, CMS integrated business platform is supported by customized technology and process controls.

In addition CMS enables it to offer its customers a wide range of tailored cash management and managed services solution.

The Company caters to a broad set of outsourcing requirements for banks, financial institutions, organized retail as well as e-commerce companies in India.

firstly, the demand for cash and cash related services in India has increased, banks and other participants in India are increasingly outsourcing their ATM operations and management.

Secondly, As of August 31, 2021, it has a network of 3,965 cash vans , 238 branches , offices to cover all of India's states , union territories and covering 97.04% of India’s 742 districts, 14,949, or 77.46%, Indian postal codes.

At last the revenue of the cash management market in India grew from approximately ₹10.0 billion in the Fiscal Year 2010 to approximately ₹27.7 billion in the Fiscal Year 2021, a CAGR of 10.88%

Outlook & Valuation:

Despite consistent growth in revenues, we saw a decline in FY21 which can be attributed to COVID-19. According to the company, the revenue in FY20 was Rs. 1388.29 Crores and fell to Rs 1321.92 crore in FY21.

However, the company has improved its net profit from Rs. 134.7 crore in FY 20 to Rs. 168.52 crore in FY 2021. Also the company has stable financial performance and increasing margins.

In the first place, the risk of market volatility needs to be considered right now on the back of rising cases from the omicron variant.

As the government focuses on digital payments, a further decrease in the use and availability of cash can have an adverse effect on business activities.

The IPO is priced at a PE of 19x to its FY21 EPS of Rs 11.09 and a P/BV of 3.24x on the NAV of Rs 66.52, which is in line with its listed peers. Thus we assign an "Avoid" rating to the IPO.

KEY MANAGERIAL PERSONNEL

• Shyamala Gopinath is the Chairperson and an Independent Director of the Company. She has been associated with the Company since November 13, 2017. In the past, she has served as the Deputy Governor of the RBI
• Rajiv Kaul is the Executive Vice Chairman, Whole Time Director and CEO of the Company. 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.
• Pankaj Khandelwal is the President and Chief Financial Officer of the Company. He is currently responsible for the finance, legal as well as secretarial functions of the Company. He is a qualified chartered accountant from ICAI with over 27 years of experience.
• Praveen Soni is the Company Secretary and Compliance Officer of the Company. He has been associated with the Company since July 1, 2009. He has over 16 years of experience in secretarial as well as legal practices.
• Manjunath Rao Pare Parmeshwar is the President- Managed Services Business. He has been associated with the Company since July 6, 2012. He has over 34 years of experience in sales and marketing across sectors.
• Anush Raghavan is the President- Cash Management Business of the Company. He has over 14 years of experience in business management and business development.
• Sanjay Singh is the Chief Human Resources Officer of the Company. He has been associated with the Company since July 26, 2021
• Rohit Kilam is the Chief Technology Officer of the Company. He has over 20 years of experience in IT across sectors.

COMPETITIVE STRENGTHS

• Leading player in a consolidating market with strong fundamentals.
• Pan-India footprint with deep penetration in growing markets.
• Longstanding customer relationships with increased business opportunities.
• Integrated business platform offering a broad range of services and products.
• Track record of strong productivity and operational excellence.
• Experienced and highly qualified management team.

KEY STRATEGIES

• Drive operational efficiencies and increase profitability.
• Expand into business areas that create synergies with the current business.
• Enhancing the organizational capabilities.

KEY CONCERNS

• Company entire IPO proceeds (Rs 1,100 Crores) is Offer for Sale.
• India has moved to digitization post demonetization.
• The company business is highly dependent on the banking sector in India.
• Company business has affected by covid-19 pandemic and it can affect in future too.
• The company derives a substantial portion of its revenue from the limited number of customers.