Radiant Cash Management Services
Radiant Cash Management Services is coming out with a 100% book building; initial public offering (IPO) of 3,95,07,978 shares of Rs 1 each in a price band Rs 94-99 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 23, 2022 and will close on December 27, 2022.
The shares will be listed on BSE as well as NSE.
The face value of the share is Rs 1 and is priced 94 times of its face value on the lower side and 99 times on the higher side.
Book running lead managers to the issue are IIFL Securities, Motilal Oswal Investment Advisors and YES Securities (India).
Compliance Officer for the issue is Jaya Bharathi Karumuri.
Profile of the company
The company is an integrated cash logistics player with leading presence in retail cash management (RCM) segment of the cash management services industry in India and are one of the largest players in the RCM segment in terms of network locations or touch points served as of March 31, 2022. The company provides services across 13,044 pin codes in India covering all districts (other than Lakshadweep) with about 55,513 touch points serving more than 5,388 locations as of July 31, 2022. The company’s marquee clients include some of the largest foreign, private and public sector banks, and the end user of its services include some of the largest e-commerce companies, retail chains, NBFCs, insurance firms, ecommerce logistics players, railways and retail petroleum distribution outlets. For the four months ended July 31, 2022, Fiscals 2022, 2021 and 2020 the company’s total annual currency movement, or the total value of the currency passing through its RCM business, amounted to Rs 485.85 billion, Rs 1,303.80 billion, Rs 912.22 billion and Rs 1,290.77 billion.
The company caters to broad set of outsourcing requirements pertaining to cash management services for banks, financial institutions, organized retail and e-commerce companies in India. It operates its business across five verticals, namely 1) cash pick-up and delivery; 2) network currency management (also known as cash burial in industry parlance); 3) cash processing; 4) cash vans /cash in transit; and 5) other value added services.
The company’s integrated offerings are supported by customised technology and process controls, which enables it to offer its clients a wide range of solutions, while generating cross-selling opportunities and driving synergies and efficiencies across its business. It also seeks to continuously improve and bring the latest technologies to meet its client demands and to improve customer experience. Further, the company has also created the RADMUS mobile application which is an enterprise mobile application for secure end-to-end reconciliation between the customer, end user and the company.
Proceed is being used for:
Funding working capital requirements.
Funding of capital expenditure requirements for purchase of specially fabricated armoured vans.
General corporate purposes.
Industry Overview
Cash in Circulation (CIC) is the sum of cash held by banks and currency held by the general public. As per the below chart, currency in circulation has been witnessing an increasing trend along with the nominal GDP. In the last decade (FY 12-FY 22), CIC has almost increased three folds (at a CAGR of 10.5%), showing a positive growth rate for the period. A growth in CIC is essential for higher economic activity in the country and augurs well for the companies engaged in cash management industry. While demonetization had a significant impact on CIC, the release of pent-up demand after re-monetization, wealth redistribution, and lower lending rates, led to a v-shaped recovery of the total cash in circulation, which has since then almost doubled (in FY 21). Despite Covid, India's CIC grew by around 32.5% between March 2020 and March 2022. As on October 31, 2022, CIC in India stood at a value of Rs 30.8 trillion. CIC is predicted to reach Rs 43.4 trillion by FY25, growing at a CAGR of 11.4%.
The last 5 years have witnessed a growth of 1.8% in the number of branches of SCBs across the country. The increase in branches, especially in rural and semi-urban areas has been an enabler for instilling banking practices in these areas. The RBI anticipates the Indian banking sector's financial performance to improve progressively in the short term, owing to the country's strong economic growth and regulatory leniency in the face of pandemic-related stress. Also the performance of Indian non-bank financial institutions (NBFIs) should be boosted by a stronger economy and expanded government support. Nearly 80% of Indians now have a bank account, the same proportion that has a mobile phone. Between FY 2012 and FY 2021, the number of bank account holders has increased from 300 million to 1.1 billion. The financial inclusion measures taken by the Government in the form of PMJDY is one of the key reasons for the high growth rate for bank accounts in the country.
In FY 2018, the Indian e-commerce market was worth Rs 1.6 trillion, and by FY 2025, it is predicted to be worth Rs 9.4 trillion. The Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second largest E-commerce market in the world by FY 2034. Because of the predominance of online shopping giants such as Amazon, Flipkart, Reliance Jio, and others, the market has more than doubled in value between FY 2015 and FY 2020. With logistics and warehouses attracting an estimated investment of nearly $1.5 billion in FY 2022, the reach of online retailers to remote locations is set to increase. E-commerce logistics companies have also seen a growth in volumes with revenues rising from $0.5 billion (FY 2016) to $5.3 billion (FY 2022) in the past five years. The revenue for E-commerce logistics companies is expected to continue at a CAGR of 18.8% to reach $9.7 billion by FY 2026.
Pros and strengths
Leading integrated cash logistics player in a consolidating industry: The company is an integrated cash logistics player with leading presence in RCM segment and are one of the largest players in the RCM segment in terms of network locations or touch points served as of March 31, 2022. The Indian cash management services market revenue grew at a CAGR of more than 10% during the period between Fiscal 2010 and Fiscal 2021, growing from approximately Rs 10 billion to Rs 27.7 billion during this period. The RCM market is estimated at Rs 6.8 billion in Fiscal 2021 and is projected to reach a market size of Rs 20.4 Billion by Fiscal 2027, growing at a CAGR of 20.3%. The growth in the organized retail sector as well as the corresponding outsourcing potential is expected to be prime factors for the development of the RCM market in India.
Pan India presence with strong network in Tier 2 and Tier 3+ locations: Through its 55,513 touch points as of July 31, 2022, covering 13,044 pin codes across India, the company offer its services in all districts in the country with the exception of Lakshadweep. Of its touch points as of July 31, 2022, 55,513 or 86.06% are located in tier 2 and tier 3+ towns and cities. The company’s revenue from operation from these markets in the three months ended June 30, 2022 and in Fiscal 2022, Fiscal 2021 and Fiscal 2020, was Rs 719.54 million, Rs 2,493.65 million, Rs 1,913.92 million and Rs 2,186.09 million, respectively. The company’s touch points in tier 2 and tier 3+ locations has increased proportionately from 40,588 on March 31, 2020 to 47,773 as on July 31, 2022. In the three month period ended June 30, 2022 and each of Fiscal 2022, Fiscal 2021 and Fiscal 2020, the company earned 85.61%, 87.19%, 86.34% and 88.05% of its revenues from tier 2 and tier 3+ towns and cities.
Diversified client base with long standing relationship: The company’s ability to offer RCM services across India, with presence in tier 2 and tier 3+ towns and cities has enabled it to attract some of the largest foreign, private and public sector banks in India as its clients. The company has a marquee client base covering some of India’s largest foreign, private sector and public sector banks (including India’s largest public sector bank). Amongst its key clients are Axis Bank Limited, Citibank, Deutsche Bank Limited, HDFC Bank Limited, ICICI Bank Limited, Kotak Mahindra Bank, Standard Chartered Bank, State Bank of India, The Hongkong and Shanghai Banking Corporation Limited and Yes Bank Limited. For the three months period ended June 30, 2022 and Fiscal 2022, Fiscal 2021 and Fiscal 2020, its top three clients contributed 39.44%, 43.10%, 39.80% and 45.10% of its total revenue from operations, with its single largest client contributing 14.17%, 17.11%, 13.91% and 19.44%, respectively.
Robust operational risk management: Risk management is a critical aspect of its operations as it is in the business of handling, transporting and managing large quantities of cash on behalf of its clients. Accordingly, the company has prepared and instituted a robust risk management framework, which consists of multiple layers, including for its human resources as well as for its technological infrastructure. The company’s offerings and operations are backed by robust risk management policies, with its cash loss in transit for the three months ended June 30, 2022, Fiscal 2022, Fiscal 2021 and Fiscal 2020 being Rs 25.41, Rs 18.85, Rs 26.96 million and Rs 25.16 million, respectively.
Risks and concerns
Significant revenue comes from limited number of customers: For Fiscal Years 2020, 2021, 2022 and for the three months ended June 30, 2022, the company’s top three customers in terms of revenue contributed 45.10%, 39.80%, 43.10% and 39.44%, respectively, and its top five customers in terms of revenue contributed 64.13%, 62.66%, 66.03% and 59.65%, respectively, in each case of its total revenue from its operations. The company’s largest customer in each period contributed 19.44%, 13.91%, 17.11% and 14.17%, in Fiscal Years 2020, 2021, 2022 and in the three months ended June 30, 2022 respectively. Accordingly, a significant percentage of its future revenues will be dependent upon the successful continuation of its relationships with these customers. The loss of any of its key customers, due to its inability to renew its contracts with them, or a decision by any one of them to reduce the services it provides to them would result in a decline in its revenues.
Business is subject to seasonal fluctuations: The company’s end users are e-commerce companies, retail chains, NBFCs, insurance firms, ecommerce logistics players, railways and retail petroleum distribution outlets. Many of these industries are seasonal in nature with higher volumes of sales happening during festivals, such as Holi, Dusshera, Diwali, Eid-ul-Fitr or Christmas or particular times of the year, leading to higher volumes of cash transactions and consequently, higher revenues for the company. The company’s fixed costs such as lease rentals, employee salaries, insurance costs and logistics-related expenses, which form a significant portion of operating costs, are relatively constant throughout the year. Consequently, lower than expected volumes during any quarter of the Fiscal or more pronounced seasonal variations in sales in its end users’ respective industries in the future could have a disproportionate impact on its operating results for the fiscal year or could strain its resources and impair its cash flows. Any slowdown in demand for its services during peak seasons or failure by it to accurately anticipate and prepare for such seasonal fluctuations could have a material adverse effect on its business, financial condition and results of operations.
Exposed to various security risks: By virtue of the nature of the industry and being in the business of handling large volumes of cash, it is exposed to various security risks and crimes that may originate from within the company, such as cash- in-transit losses, reporting errors (both deliberate and inadvertent) and theft, embezzlement, fraud and other forms of malpractice by its employees and personnel provided to it by its independent contractors. In the Fiscal Years 2020, 2021, 2022 and in the three months ended June 30, 2022, there were 13, 4, 6 and 15, instances of cash embezzlement by its employees or cash executives on contract, respectively, involving an aggregate amount of Rs 17.35 million, Rs 14.17 million, 6.10 million and Rs 23.47 million, respectively. Against this, the company was able to recover insurance claims of Rs 0.28 million, Rs 1.81 million, Rs 1.78 million and Nil, respectively as of Fiscal Years 2020, 2021, 2022 and in the three months ended June 30, 2022. To the extent that the company suffers loss or damage for which it did not obtain or maintain insurance, and which is not covered by insurance, exceeds its insurance coverage or where its insurance claims are rejected, the loss would have to be borne by it and the business, results of operations, cash flows and financial performance could be adversely affected.
Stiff competition: The company faces competition and pricing pressures from competitors using similar pricing models in the markets in which it operates. While the 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. It has experienced periods of increased competition from its competitors and other players in the market attempting to increase their market share. The industry in which it 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 it, which could further increase the competition it faces to sell its services.
Outlook
Radiant Cash Management Services is the market leader in retail cash management services for banks, financial institutions, and organized retail and e-commerce companies in India. The company offers a range of services under this segment consisting of collection and delivery of cash on behalf of its clients from the end user. On the concern side, the company derives a substantial portion of its revenue from a limited number of customers. If one or more of its key customers were to suffer a deterioration in their business, cease doing business with it or substantially reduce its dealings with it, the company’s revenues could decline, which may have an adverse effect on its business, results of operations, cash flows and financial condition.
The issue has been offered in a price band of Rs 94-99 per equity share. The fresh issue size is targeted to raise Rs 391.13 crore. Minimum application is to be made for 150 shares and in multiples thereon, thereafter. On performance front, the company’s overall revenue from operations increased to Rs 2,860.35 million for Fiscal 2022 from Rs 2,216.72 million for Fiscal 2021, representing an increase of 29.04%. This increase in its revenue from operations was primarily due to an increase in its overall commission income from its customers on account of growth in business volumes and gradual removal of the restrictions on movement, transactions, including those using cash as a medium of settlement. Moreover, the company’s profit for the year increased by 17.81% to Rs 382.09 million for Fiscal 2022 from Rs 324.33 million for Fiscal 2021. Going forward, the company has invested significantly over the years in developing route infrastructure across the country, and it intends to leverage this by adding more direct clients along its existing routes to improve the route level profitability. Towards this end, the company aims to build a sales organisation in each of its regional offices with specific mandates to target small and mid-size retail outlets along the existing routes and offer the services directly to these outlets. Moreover, the company plans to strengthen its existing sales and marketing team, which is currently spread across Mumbai, Chennai and Jodhpur, with addition of a business development team at some of its regional offices to tap the local business and target direct customers.
