CMS Info Systems
CMS Info Systems is coming out with a 100% book building; initial public offering (IPO) of 53,65,48,536 shares of Rs 10 each in a price band Rs 205-216 per equity share.
Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
The issue will open for subscription on December 21, 2021 and will close on December 23, 2021.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 10 and is priced 20.50 times of its face value on the lower side and 21.60 times on the higher side.
Book running lead manager to the issue are Axis Capital, DAM Capital Advisors, Jefferies India and JM Financial.
Compliance Officer for the issue is Praveen Soni.
Profile of the company
The company’s integrated business platform is supported by customised technology and process controls, which enables it to offer its customers a wide range of tailored cash management and managed services solutions, while generating cross-selling opportunities and driving synergies and efficiencies across its business. It cater to broad set of outsourcing requirements for banks, financial institutions, organized retail and e-commerce companies in India. Cash management services 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. Managed services 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. Others include end-to-end financial cards issuance and management for banks and card personalization services.
The company also has a track record of successfully incubating and building multiple new service lines in areas adjacent to its business, which has allowed it to offer its customers a broader range of services and products, as well as realize synergies within its managed services business. Its integrated service and product offering has enabled it to shift its business mix towards providing more integrated end-to-end services for its customers, which has meant that it is able to offer its customers lower pricing, more reliable service through a single point of accountability, improved advance planning of routes, faster reconciliation and improved days sales outstanding, which is a measure of the average number of days that it takes company to collect payment for sales, as well as increased customer loyalty and reduced customer turnover. Its ability to do this is demonstrated by its track record of winning large and complex end-to-end Brown Label deployment and managed services customer contracts and expanding the services it provide to its customers. Banks and other participants in India are increasingly also outsourcing their managed services needs, such as through Brown Label ATMs, where it deploy, maintain and manage ATMs on an end-to-end basis under a bank’s brand name, and other services, such as multi-vendor software solutions and remote monitoring, in order to drive better ATM management and accountability.
Proceed is being used for:
Industry overview
The Indian banking sector is poised for a growth phase, coming out of an extended period of capex stagnation and credit down-cycle over the last five years on account of high non-performing asset (NPA) levels, demonetization, good and services tax (GST) implementation and PSU mergers. The up cycle is expected to drive expansion into SURU areas and investments in infrastructure, including ATMs. This will drive opportunities for a variety of businesses that provide services to banks, including cash management companies. The number of ATMs grew at a CAGR of 20% between Fiscal Year 2011 and Fiscal Year 2016, but the increase between 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. Given the government's focus on recapitalization and financial inclusion, banks are expected to accelerate retail expansion going forward (both in terms of increasing the number of branches and ATMs).
The Indian cash management market is on a path towards consolidation, predominantly driven by players exiting the market space owing to strict compliance requirements and the increasing trust towards scale players. As evidenced in most global markets where cash management is a duopoly, the consolidation trend is projected to continue. Cash management companies provide three main services to their customers, namely: ATM cash management, RCM and DCV (i.e. vehicles used for cash transportation and cash replenishment activities). Cash management service providers also provide other services such as transportation of jewels, art works, valuables and bullion, cash processing and cash vault services. The revenue of the Indian cash management market grew at a high CAGR of ~10% between Fiscal Year 2010 to Fiscal Year 2021 from approximately Rs 10 billion to Rs 27.7 billion due mainly to an increase in the services offered by cash management companies, including cash vault services, bullion management, cash processing and other services. The organized retail sector is growing at an annual rate of 20%. Increasing customer base in the form of ecommerce, organized retail chains, jewelers, gold loan companies and hospital chains are positively driving the cash management market, especially the RCM business in India. These sectors handle large volumes of cash and use the services of private cash management companies.
Pros and strengths
Leading player in consolidating market with strong fundamentals: As of March 31, 2021, the company is India’s largest cash management company based on number of ATM points and number of retail pick-up points and had 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. The company’s industry is consolidating due to changes in regulations designed to ensure that cash management companies meet certain operating standards with respect to the handing of cash, as well as trends in customer preference favouring larger cash management companies with more scaled and stable operations. The market share of the two largest ATM cash management companies, one of which being the Company, has increased from 60.0% in Fiscal Year 2018 to 72.0% in Fiscal Year 2021, while the number of cash management companies with over 5.0% market share has decreased from six to four. It provides a wide range of services across each stage of the entire cash cycle in India and its services help increase the velocity of cash through the cash cycle by assisting customers to meet their outsourcing needs and increase the speed with which they handle cash. In addition, the size and wide reach of its network enables it to realize further economies of scale, allowing it to increase the productivity of its operations and its profit margins.
Longstanding customer relationships leading to increased business opportunities: The cash management services, managed services and other services that the company provides to MSPs, banks and its other customers form a critical function in the businesses that they serve. Accordingly, trust and reliability in its services are of utmost importance to its customers. It has built up that trust through its track record of providing efficient, cost-effective and quality-oriented services, while using risk management systems and processes. Its platform of services aims to provide its customers with the same level of quality, efficiency and consistency across India, regardless of location, while enabling them to benefit from the economies of scale of its network. This is an advantage not only when it is providing a new service in a different location to an existing customer but also when it is taking on a new customer that requires a broad range of services across a number of different locations. In Fiscal Years 2019, 2020 and 2021, it generated at least Rs 200 million in revenues from 15, 16 and 16 customers, respectively.
Integrated business platform offering broad range of services and products: The company has a track record of successfully incubating and building multiple new service lines, which has allowed it to offer its customers a broad range of services and products, as well as realize synergies within its business. It also entered the remote monitoring segment in 2021 and has an order book for 14,920 ATM sites as of July 31, 2021 based on two contract wins of 9,520 and 5,400 ATMs, respectively. With its expanded service and product offering, it is present in all major market segments in the cash management and ATM managed services industry, which means it is able to offer integrated services to customers and provide them with 'one-stop' solutions, which also provides it with a competitive advantage for future projects. Its ability to do this is demonstrated by its track record of expanding the services it provide to its customers, such as SBI, to which it initially only provided ATM cash management services and now offer multiple solutions across the cash management value chain, including retail cash management, banking automation products, remote monitoring, brown label ATM services, managed services, multi-vendor software solutions and currency chest services.
Track record of strong productivity and operational excellence: As the company’s business has grown, it has actively sought to increase its profitability and the efficiency with which it deploy its resources by: (i) increasing the density of stops in the routes of its cash vans; (ii) leveraging the fixed costs of its cash processing infrastructure; and (iii) introducing other efficiencies, such as by standardizing and automating processes. It has done this in conjunction with independent consultants, with whom it undertakes studies to identify improvement areas in its operations. The company has increased its productivity by leveraging its network to realize economies of scale, improving its processes and planning and increasing the density of stops in the routes of its cash vans, such as by using route optimization technologies to identify low density routes and available capacities to optimize the routes of its cash vans. It also encourages and plan overnight vaulting and early withdrawals with its customers, which helps it to maximize the time it has for its operations at customer locations.
Risks and concerns
Business is highly dependent on banking sector in India: The company’s cash management services, which accounted for 77.70%, 70.68%, 68.61% and 66.74% of total revenue from operations for Fiscal Years 2019, 2020 and 2021 and the five months ended August 31, 2021, respectively, are ultimately utilized by banks, while most of the customers of managed services, which accounted for 17.21%, 26.19%, 27.88% and 30.64% of total revenue from operations for Fiscal Years 2019, 2020 and 2021 and the five months ended August 31, 2021, respectively, and of its cards business are banks. As a result, company’s business is both directly and indirectly highly dependent on the banking sector in India. Any adverse developments that impact the businesses of banks could result in banks postponing or cancelling any planned expenditures with respect to ATM cash management services they outsource to MSPs, retail cash management services they provide or their ATM networks, which in turn could result in decreased demand for services. It could also result in increased competition for cash management and managed services mandates and increased pricing pressure for the services the company provides.
Dependent on limited number of customers: Most of the company’s key customer contracts are subject to annual pricing renegotiations, and may also be terminated by any party by notice without cause. Its key customers may also elect not to renew their contracts upon expiration or following negotiations with the company. In addition, even if its customers renew their contracts, the renewal terms may be less favourable to the company than current contracts with them. If any of key customers fail to renew their contract with the company upon expiration, or if the renewal terms with any of them are less favourable to the company than under current contracts, it could result in a decline in revenues from such customers, which may have an adverse effect on business, results of operations, cash flows and financial condition. There can be no assurance that any of key customers will renew their contracts with the company upon expiration, or that any renewal terms will not be less favourable to the company than its current contracts, and to the extent the company are not able to renew its contracts with key customers, there can also be no assurance that the company will be able to find new customers of appropriate size or at all in the future to compensate for any key customers that the company lose or that renew their contracts on less favourable terms.
Operates in highly competitive market: The company faces competition and pricing pressures from competitors using similar pricing models in the markets in which they operate. While industry has consolidated over the years, it still has a number of industry participants, and is subject to competition, including in respect of pricing of services. The company have experienced periods of increased competition from competitors and other players in the market attempting to increase their market share. Further, MSPs have in the past and may in the future build in-house cash management business divisions to serve their captive demand, thereby increasing the competitive intensity of the industry. The industry in which the company operates is undergoing a maturing and consolidation process driven primarily by the RBI operating standards and customer preference to work with large and reliable service providers, resulting in consolidation among existing industry participants as well as among customers. As this process continues, some of its competitors may consolidate or merge with large domestic or international competitors with more resources than the company, which could further increase the competition the company face to sell its services. To the extent that competitors utilise those resources or other means to introduce new services or utilise improved technologies to gain further efficiencies, it may be more difficult for the company to sell its services and compete effectively, which could result in losing business or customers to competitors. Similarly, consolidation among customer and potential customers may significantly increase their negotiation power and ability to require terms of service that are more favourable to them, including in respect of price.
Business has significant expenses in relation to services procured from third parties: The company procure various services from third-party service providers, including providers of service personnel, such as drivers, custodians, back-office executives and cleaning personnel. In addition, to protect its operations and employees, it also procures security services from registered third-party security service providers. Its costs associated with personnel provided by its third-party service providers and third-party security service providers are primarily driven by the fees that these third-party service providers charge it, which may be impacted by similar pricing pressures that it face with respect to its employees, such as demand and supply of labour in any particular region, wage inflation and other macroeconomic factors, regulatory increases in the minimum wage and subsequent pricing demands by third-party service providers or other factors. In addition, its service and security charges are also impacted by input costs that these service providers are required to bear, such as increases in minimum wages, which has recently been increasing. Further, any regulatory changes such as the MHA Gazette in 2018 which laid down model rules that regulate outsourcing of security services by cash transportation companies could result in an increase in cost of its third-party service providers and third-party security service provider.
Outlook
CMS Info Systems 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 and e-commerce companies in India. The company’s integrated business platform is supported by customised technology and process controls, which enables it to offer its customers a wide range of tailored cash management and managed services solutions, while generating cross-selling opportunities and driving synergies and efficiencies across its business. The company also have a track record of successfully incubating and building multiple new service lines in areas adjacent to its business, which has allowed it to offer its customers a broader range of services and products, as well as realize synergies within its managed services business. On the concern side, the company is dependent on timely and accurate reconciliation by MSPs and banks to complete the process, which could affect its ability to promptly detect any shortfalls in cash, and certain cash shortfalls and introduction of counterfeit currency can only be detected by an internal audit of the ATM at a later date. Besides, the service and security costs charged by its third-party service providers and third-party security service providers are subject to wage inflation and other macroeconomic factors that can cause the service and security costs charged by these third-party service providers to increase.
The issue has been offered in a price band of Rs 205-216 per equity share. The aggregate size of the offer is around Rs 10,999.24 crore to Rs 11589.44 crore based on lower and upper price band respectively. On the performance front, the company’s revenue from operations decreased 5.58% from Rs 1383.23 crore for Fiscal Year 2020 to Rs 1306.09 crore for Fiscal Year 2021, due to a decrease in company’s cash management services revenue, which was offset in part by an increase in revenue generated by its managed services business and others segment. Profit for the year increased by Rs 25.10% from Rs 134.70 crore for Fiscal Year 2020 to Rs 168.52 crore for Fiscal Year 2021. The company intends to increase the share of its services that are integrated with other services in its business as it shift its business mix towards providing more integrated end-toend services for its customers. It also intends to continue to introduce other efficiencies, such as by standardizing and automating processes throughout its business, as well as continuing to leverage its integrated service and product offering to increase productivity through improved planning and scheduling.
