CMS Info Systems IPO subscribed by 1.95 times at the end of Day 3.

CMS Info Systems Limited (CMS) IPO opened for subscription on 21st December. The IPO got subscribed by 1.95 times at the end of Day 3. The company is looking to raise up to Rs 1,100 crore through the public issue. Here are the details:

About CMS Info Systems Limited IPO

CMS Info Systems Limited IPO Date: 21 December - 23 December 2021

CMS Info Systems Limited IPO Price band: Rs 205 - Rs 216

CMS Info Systems IPO Issue Size: Rs 1,100 crore (Offer for sale aggregating up to Rs 1,100 crore)

Reservation: QIB 50%, Retail - 35, NII 15%

Post Issue Market Cap: Rs 3,034 crore to Rs 3,197 crore

Minimum Investment: Rs 14,904

Bid lot: 69 shares, and in multiples of 69 shares

CMS Infosystems: Objects of the Issue

The net proceeds from the IPO will be utilized for the following purposes :

• To carry out an offer for sale of equity shares by promoters.
• To achieve the benefits of listing the equity shares on the stock exchanges.

About CMS Info Systems 

• CMS was incorporated in 2008, and it is India's largest cash management company based on the number of ATM points and many retail pick-up points.
• The company's business includes installing, maintaining, and managing assets and technology solutions on an end-to-end outsourced basis for banks under long-term contracts.
• CMS's cash management business is largely route-based and managed services business on the other hand is largely recurring in nature.
• The business operates in 3 segments - cash management services, managed services, and others (financial cards issuance for banks and card personalization services).
• It has a pan-India fleet of 3,965 cash vans and a network of 238 branches and offices which cover all of India’s states and union territories, except the remote union territory of Lakshadweep.
• Through their network, CMS has served more than 141,977 business points across their ATM cash management, retail cash management, and managed services businesses.
• CMS is also supported by their Promoter - Sion Investment Holdings Pte. Ltd, which acquired the company in 2015.

CMS Info Systems Business Segment

CMS Info Systems operates in three segments - 

Cash Management Services - It includes end-to-end ATM replenishment services, cash pick-up and delivery, network cash management, and verification services. Also, it offers cash-in-transit services to the banks.

Managed Services - It includes banking automation product sales, deployment, and associated annual maintenance, end-to-end Brown Label deployment, and managed services for banks. Also, it offers common control systems and software solutions including multi-vendor software solutions and other security and automation software solutions and remote monitoring for ATMs.

Others - It includes end-to-end financial card issuance and management for banks and card personalization services.

CMS Infosystems: Listed Peers

CMS Info Systems is in the cash management and managed services industry. None of the listed companies in India are exclusively engaged in a portfolio of business similar to CMS. However, there is one listed company in India that also provides cash management services, among other services, through its joint ventures.

The listed peer is SIS Limited. 

In terms of revenue, the largest player is SIS Ltd with a total income of Rs 9,605.10 crore (FY21).

• The highest EPS is for SIS Limited of 24.85, followed by CMS with EPS of 11.39 (FY21).

CMS Infosystems: Financials
The company reported revenue from operations for FY19, FY20, and FY21 of Rs 1146.16 crore, Rs 1383.24 crore, and Rs 1306.09, respectively.

• The company reported revenue from operations for FY19, FY20, and FY21 of Rs 1146.16 crore, Rs 1383.24 crore, and Rs 1306.09, respectively.
• The EBITDA for FY19, FY20, and FY21 reported is Rs 211.09 crore, Rs 258.96 crore, Rs 309.44 crore, respectively. 
• The Net profit for FY19, FY20, and FY21 is Rs 96.41 crore, Rs 134.71 crore, Rs 168.52 crore, respectively. The Net Profit Margin for the same period is Rs 8.41%, 9.74%, and 12.90%, respectively.
• The average Earning Per Share (EPS, Diluted) and RoNW for the last three financial years are 9 and 15.28%, respectively.
• The Cash Management services accounted for 68.61%, Managed Services accounted for 27.88%, and Others accounted for 3.51% of revenue for FY21.
• Cash Management services grew at a CAGR of 0.31% and Managed Services at 35.88% between FY19 and FY21.
• The managed services business is largely recurring in nature with 52.45% of revenue from the managed services business in FY21 being generated from long-term contracts, which provides high revenue visibility. 

CMS Infosystems: Industry Outlook

The cash in circulation (CI) is the total of cash with banks and currency with the public. The CIC in India has grown at approximately 19.8% between March 2020 and March 2021 to approximately Rs 28,40,000 crore. As of August 2021, the CIC in India was Rs 29,50,000 crore.

Because of a strong informal economy, low ATM penetrations, and cash's role as a store of value in India, a significant part of the cash in India does not flow in the ATM/banking system. Further, cash velocity in India in 2020, measured by ATM withdrawals is approximately 17% of GDP or 1.5 times of CIC, which is much lower compared to the other countries.

This indicates that there is significant headroom for growth in India for the volume of cash circulated through the ATM/banking system. 

CMS Infosystems: USPs

Leading player with strong fundamentals - Despite India having one of the lowest ATM penetration rates in the world, India is the third-largest ATM market in the world based on the number of installed ATMs. CMS is India’s largest cash management company based on a number of ATM points and retail pick-up points and had a market share of 24.7%, based on the total number of ATMs in India. As the demand for cash and cash-related services in India has increased, banks and other participants in India are outsourcing their cash management needs. The company has strong financials evident from the above section.

PAN India presence - They have a pan-India fleet of 3,965 cash vans and a network of 238 branches that covers 97.04% of India’s districts and 77.46% Indian postal codes, including difficult-to-reach and remote rural and sem-iurban areas. It is among the first cash management companies to invest in the growth of their business in rural and semi-urban areas in India.

Long Standing customers relationships - For the ATM cash management business, they have relationships with six of the 12 largest MSP customers for more than ten years and four additional customers for more than five years. For the retail cash management business, they have had relationships with nine of their largest customers for more than 10 years.

Integrated business platform with a range of products and services - They have a track record of successfully incubating and building multiple new service lines, which has allowed them to offer their customers a broad range of services and products. In 2019, they entered the multi-vendor software solutions segment and are now a leading player for multi-vendor software opportunities in India.

CMS Infosystems: Growth Potential

Leverage scale and integrated offering to grow the business - CMS platform offers customers a single point of reference across India for their operations. Its integrated offerings and knowledge of the markets and regional requirements in which they operate enable them to provide customers with better quality services that are customized to their needs and offer them a 'one stop' solution for a variety of their outsourcing needs. 

Accretive Strategic Acquisitions - CMS plans to acquire and incubate new businesses and scale them up where they will identify opportunities for potential growth. In 2017, they acquired the business of a small Brown Label ATM services company. They currently intend to consider opportunities that consolidate their market position in existing business lines.

Capitalize on the growing cash cycle to expand the operations - CMS currently provides a wide range of services across each stage of the entire cash cycle in India and assist customers to meet their outsourcing needs and increase the speed with which they handle cash by automating and decreasing duplication in the processing and turnaround of cash. Many banks are outsourcing their ATM servicing requirements on an end-to-end basis, and since they are present across the entire ATM and cash management value chain, they can offer their customers integrated service and product offerings to meet their needs. 

CMS Infosystems: Risks

Decrease in the availability or use of cash - CMS's business and results of operations are significantly dependent on the use of cash remaining the predominant mode of payment in India. Promoting cashless payments has been a key part of the GoI’s broader efforts to, among other things, curtail the circulation of counterfeit Indian currency. If such government initiatives take effect and achieve what they set out to accomplish, there will be a shift in consumer trends in India. It could have an adverse effect on the company's revenue and cash flows.

Dependency in the banking sector - Its business is highly dependent on the banking sector in India, and any adverse development with respect to Indian banks that adversely affect their utilization of and demand for cash management services or their deployment or utilization of ATMs could impact CMS's business.

Significant expenses - For FY19, FY20, and FY21 as a percentage of its total expense, employee benefits expense accounted for 21.15%, 18.38%, and 18.59% respectively, and vehicle maintenance, hire, and fuel cost accounted for 12.60%, 10.92%, and 10.30%, respectively. Any material increase in any of these expenses could affect its ability to competitively price its services, and it may affect its business.

CMS Infosystems IPO:
CMS Infosystems has reported a steady 7% CAGR rise in its total revenues between FY19 and FY21, despite the pandemic. The company’s topline declined by 6% in 2021, as ATM’s saw reduced footfalls amid the pamdeic. The company’s bottomline increased by a healthy 32% CAGR in the same period. CMS Infosystems has reported a net profit of about Rs 169 crore in FY21.

The company was able to increase its EBITDA margin from 19% in FY19 to 23% in FY21. The company’s return ratios have also been in a healthy range of 13-17% over the last three years. 

At the higher end of the price band, CMS Infosystems IPO is attractively priced at a PE ratio of ~19 times FY21 EPS. This is lower than listed peer SIS Ltd (60 times). SIS Ltd had reported a slightly higher Return on Net Worth as compared to CMS Infosystems. 

Given factors such as strong growth in bottomline, healthy margins, robust return ratios, good growth visibility, robust runway for growth and attractive valuations, we remain “positive” on the prospects of this issue.

Subscription Status as on 23rd Dec 2021 (End of Day 3)