CMS Infosystems IPO Review: Should You Invest?

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CMS Infosystems IPO opens today for subscription and will close on 23 December 2021. This upcoming IPO is purely an Offer For Sale (OFS) by existing shareholders and thus, the company will not get any funds from IPO proceeds. Priced in the range of INR205 – 216 per share, the IPO aims to mobilize INR1,100 crore. Through this CMS Infosystems IPO review, we aim to find out if the offer is a good fit for investors’ portfolio.

CMS Info Systems IPO details

Subscription Dates21 – 23 December 2021
Price BandINR205 – 216 per share
Fresh issueNil
Offer For SaleINR1,100 crore
Total IPO sizeINR1,100 crore
Minimum bid (lot size)69 shares
Face Value INR10 per share
Retail Allocation35%
Listing OnNSE, BSE

CMS Infosystems IPO Review: Business Background

CMS Info Systems is India’s largest cash management company based on number of ATM points and number of retail pick-up points. It is also among the largest ATM cash management companies worldwide based on number of ATM points as on FY2021.

Over 68% of its revenue come from Cash Management segment while the rest came from managed services. The company has presence across cash cycle including ATM cash deployment, retail cash management, currency processing, reporting and reconciliation, currency chest automation, and cash in transit services in India. It commands more than 41% market share in ATM cash management.

The company has a strategic arrangement with Hyosung TNS Inc., which allows it to offer a comprehensive suite of banking automation products.

CMS Infosystems IPO Review

CMS Infosystems IPO Review: Financial Performance

Like most other businesses, the company’s operations were hampered last year due to Covid-19. Although its services were classified essential, it still faced the brunt of lower cash spend by consumers during the pandemic. Nevertheless, the company has maintained a heathy rate of revenue growth and also has a good control on costs. It managed to post higher profits in FY2021 despite lower revenues.  

Its zero-debt balance sheet has also helped in putting up a brilliant show and it is reflected in impressive Return on Net Worth (RONW) of 17.1%.

CMS Info Systems’ Financial Performance

 FY2019FY2020FY20215M FY2022
Revenue1,159.31,388.31,321.9629.7
Expenses1,009.41,193.21,084.2516.3
Net income96.0133.6168.484.5
Margin (%)8.39.612.713.4
Figures in INR crore unless specified otherwise

CMS Infosystems IPO Review:  Should you invest?

The company operates in an industry which has several regulatory and industry tailwinds. At the end of FY2021, there were nearly 255,000 ATMs in India and this figure is expected to increase to 365,000 by FY2027. The sheer growth in number of ATMs is a huge positive for players like CMS Infosystems. Another beneficiary of this trend is India1 Payments which is the largest independent non-bank ATM operator in India.

A parallel trend of increasing outsourcing in end-to-end mode by banks is also likely to help players with scale and latest technology. As an example, outsourced ATMs formed nearly 60% of total ATMs in India during FY2021 and this figure is likely to increase to 75% by FY2027.

To be sure, the share of managed services in the company’s revenue contribution is on an increase. This figure jumped from 17% in FY2019 to 30.4% at the end of August 2021. These managed services include software solutions, remote monitoring and currency chest automation. These services are typically multi-year deals with recurring cash flows.

Technology is making inroads in every industry and seemingly mundane operations like cash and ATM management are also not spared. Thankfully, CMS Infosystems appears to be well-prepared with its focus on opportunities in remote monitoring. It has made an acquisition and already has an orderbook of 15,000 ATMs for these services.

In terms of valuations, the asking price is pretty much in line with the rest of the market. At the higher price band of INR216 per share, the offer’s P/E ratio stands at 19.48 on FY2021 earnings. This compares with P/E ratio of 18.83 of SIS Limited whose entire business isn’t comparable with CMS Infosystems. Another peer AGS Transact (also an IPO hopeful) has seen its revenues dwindling in recent years.

This is not to suggest that the company’s business is entirely risk free. In fact, the government’s focus on digital payments is a major headwind for the company’s business model. Nevertheless, it is unlikely that a vast country like India will go completely digital. The return of cash after demonetization and Covid-19 is a case in point.

Overall, CMS Infosystems IPO review finds out that profitable operations, leadership position, favorable industry structure and attractive valuations work in its favor. Unlike some of the recent IPOs, there is no scarcity or leadership premium embedded in pricing.

CMS Infosystems IPO Review

Anil Sharma

CMS Infosystems IPO Review: Industry Structure
CMS Infosystems IPO Review: Management Analysis
CMS Infosystems IPO Review: Financial Performance
CMS Infosystems IPO Review: Valuations

Summary

CMS Infosystems IPO review highlights the positives namely profitable operations, leadership position, and favorable industry structure while attractive valuations is the icing on the cake.

4.5

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