CMS Info Systems IPO Fundamental Analysis (May Apply)

Key Business Highlights

Incorporated in the year 2008, CMS is a cash management company; the business includes installing, maintaining and managing assets and technology solutions on an end-to-end outsourced basis for banks under long term contracts. For FY21 total currency throughput, or the total value of the currency passing through the Issuer and retail cash management businesses, amounted to Rs 9,158.86 billion.
Sion Investment Pvt Ltd is the promoter company (Sion's parent is Baring Private Equity Asia Holding). Promoter shareholding would reduce to 65.59% through OFS.
The company has three operating segments:
1. Cash management services- It includes end-to-end ATM replenishment services; cash pick-up and delivery; network cash management and verification services (together known as "retail cash management services"); and cash-in-transit services for banks. This segment accounted for 68.61% and 66.74% of revenue respectively in FY21 and 5MFY22 and grew at a CAGR of 0.31% from FY 19 -21.
2. Managed services- It 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; as well as remote monitoring for ATMs. It accounted for 27.88% and 30.64% of revenue from operations in FY21 and 5MFY22 and grew at a CAGR of 35.88% from FY19-21.
3. Others- It includes end-to-end financial cards issuance and management for banks and card Personalization services, accounting for 3.51% and 2.62% of revenue from operations for FY21 and 5MFY22.
The Issuer has a pan-India fleet of 3,965 cash vans and network of 238 branches and offices, which as of August 31, 2021 cover all of Indian states and union territories except remote union territory of Lakshadweep. CMS covers 97.04% of India's 742 districts and 14,949 or 77.46% Indian postal codes, including difficult to reach and remote rural and semi-urban areas. CMS has served 141,977 business points across ATM cash management, retail cash management and managed services businesses as of August 31, 2021.

Financial Review of CMS Infosystems Ltd

The Issuer posted total revenues of Rs 629.72 for 5MFY22 and earned PAT of Rs 84.47 crore during the same period. The total revenues for FY21 reduced by 5% to Rs 1321.92 crore in FY21 from Rs 1388.29 crore in FY20 due to impact of the pandemic on the business operations of the Issuer. However, PAT rose by 19.5% to Rs 168.52 crore in FY21 from Rs 134.71 crore in FY20. The company maintained its profitability margins in FY21 with reduction in employee benefit expenses and other expenses. The Issuer has consistent profitability margins in FY19 and FY20 and it increases in FY21 with its profitability maintaining measures.

Debt to equity is negligible at 0.22x as at the end of 5MFY22. Return on net worth is 7.97%, 17.12%, 15.84% and 12.89% in 5MFY22, FY21, FY20 and FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	31Aug21	FY2021	FY2020	FY2019
Total Revenue	629.72	1321.92	1388.29	1159.31
PAT	84.47	168.52	134.71	96.14
EBITDA	153.09	309.44	258.97	211.10
Total Assets	1578.09	1611.81	1332.74	1092.70
Cash generated from operations	8.16	185.44	214.16	101.78
EBITDA Margin	24.31%	23.41%	18.65%	18.21%
Net Margin	13.41%	12.75%	9.70%	8.29%

Valuation and Peer Comparison

The Issue is priced at 16.39x with annualized EPS of 13.18 as at the end of 5MFY22 calculated at the upper band price of Rs 216. With FY21 earnings (diluted EPS of 11.09), P/E is 19.48x. The Issue appears to be fully priced with a peer average P/E of 18.83. P/BV is 3.02x with a NAV of 71.58 as of the end of 5MFY22. SIS Ltd is shown as the listed peer and AGS transaction is the unlisted peer as per the RHP. For understanding, one can refer to the peer comparison table for peer performance details.

Table 2 - CMS Infosystems Ltd valuation and peers comparison
Particulars	SIS Ltd	AGS Transact (Unlisted)	Radiant CMS (Unlisted)	CMS
Face value per share	10	5	1	10
Total Income for FY 21 (Cr)	9605.10	1797.15	224.16	1321.92
EPS	24.73	4.55	3.20	11.09
NAV per share	123.45	47.11	12.55	66.52
Return on net worth	20.06%	10.29%	25.52%	17.12%
P/E	18.83	NA	NA	NA

The Issue Snapshot

CMS Infosystems Ltd IPO opens on Dec 21 with IPO size of Rs 1100 crore (100% OFS) with price band of Rs 205-216 per share. Retail quota is 35% and minimum application amount is Rs 14904. The Issue closes on Dec 23 and is expected to get listed on Dec 31, 2021.

Conclusion and Investment Strategy

The ATM penetration rate in India is approximately 22 ATMs per 100,000 individuals at an overall level with semi-urban / rural areas being acutely underpenetrated at 15 ATMs per 100,000 individuals as of 2020. In contrast, the penetration rate for USA, Brazil, China and Mexico is 123, 103, 95 and 62 respectively per 100,000 individuals as of 2020. The global average for ATM penetration stands at 47 ATMs per 100,000 individuals.

The number of ATMs grew at a CAGR of 20% between Fiscal Year 2011 and Fiscal Year 2016, but the increase between the Fiscal Year 2016 and Fiscal Year 2021 slowed down to a 3% CAGR (reaching 255,000 ATMs) due to demonetization, PSB consolidation, and the balance sheet difficulties of PSBs.

CMS Infosystems has a reasonable financial profile with consistent profitability margins and a negligible leverage profile. 68% of the revenue contribution is generated by the cash management services segment. The revenue from this segment had reduced by 8% in FY21 due to the pandemic. The concern that arises is the increasing use of digital payments and covid has further enhanced it. With RBI promoting digital payments, it becomes a long-term risk. Another negative factor is that the IPO is entirely an offer for sale by the existing promoters. The growth in the future may be slower for its business segment. Looking at the above actors one May Apply for short to medium term looking at the market conditions prevailing.

Reviewer recommends May Apply to the issue.

Review By CA Priyanka Choudhary on 15th Dec 2021

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.