Radiant Cash Management IPO: Detailed Review

Radiant Cash Management Services Limited IPO opens for subscription on 23rd December. The company is looking to raise up to Rs 387.94 crore through the public issue. Here are the details: 

Radiant Cash Management IPO Details:

• Radiant Cash Management IPO Date: 23 December - 27 December 2022
• Radiant Cash Management IPO Price band: Rs 94 - Rs 99
• Radiant Cash Management IPO Issue Size: Rs 387.94 crore (Fresh Issue of Rs 60 crore and Rs 327.94 crore OFS)
• Reservation: QIB 50%, Retail 35%, NII 15%
• Minimum Investment: Rs 14,850
• Bid lot: 150 shares, and in multiples of 150 shares

Radiant Cash Management IPO: Issue objective

Radiant Cash Management proposes to utilise the Net Proceeds of the fresh issue towards funding the following objects:

• Funding working capital requirements.
• Funding of capital expenditure requirements for the purchase of specially fabricated armoured vans.
• General corporate purposes.

Radiant Cash Management IPO: About Radiant Cash Management 

• The company was incorporated in 2005 and is the market leader in retail cash management services for financial institutions, banks, and organised e-commerce and retail companies in India.
• Radiant offers many services under this segment consisting of collection and delivery of cash on behalf of clients from the end user.
• As of 31 March 2022, they are one of the largest players in the RCM segment in terms of network locations or touch points served.
• Radiant provides services across 13,044 pin codes in India covering all districts with about 55,513 touchpoints serving more than 5,388 locations (July 31, 2022).
• Their key clients are Axis Bank Limited, HDFC Bank Limited, State Bank of India, ICICI Bank Limited, Citibank, Deutsche Bank Limited, Kotak Mahindra Bank, Standard Chartered Bank, The Hongkong and Shanghai Banking Corporation Limited, and Yes Bank Limited.

Radiant Cash Management IPO: Business verticals

The company operates its business across five verticals as below:

1. Cash pick-up and delivery: The services include collection and delivery of cash on behalf of clients from the end user.
2. Network currency management: Services include cash collection from an end user and deposit into current accounts and subsequent transfer to the client’s accounts either on the same day or on the next working day.
3. Cash processing: As an integrated RCM service provider, they offer value-added cash processing services to clients. These primarily are like trained executives sorting the notes into different categories.
4. Cash Vans/Cash in transit: They also offer specially fabricated armoured vans, on long-term or ad-hoc hire for the movement of cash or bullion within the client’s network. 
5. Other value-added services: They offer man-behind counter and currency chest operations to large retail stores and banks.

Radiant Cash Management IPO: Industry Outlook

• Cash in Circulation (CIC) is the sum of cash held by banks and currency held by the general public. Currency in circulation has been witnessing an increasing trend along with the nominal GDP. 
• In the last decade (FY12 - FY22), CIC has almost increased three fold (at a CAGR of 10.5%), showing a positive growth rate for the period.
• Despite growth in digital transactions, cash still accounts for the majority of payment transactions (at point of sale) in India. 
• In FY20, approximately 89% of all transactions in India by volume were cash-based, down from 99.3% in FY11. While new payment methods have begun to compete with cash, a considerable section of the country still prefers cash.

Radiant Cash Management IPO: Listed peers

The company has only two listed peers - CMS Info Systems Limited and SIS Limited. However, the business is not an apple-to-apple comparison. For example, Radiant has ceased its ATM cash management operations, while the listed peers continue to provide such services. Further, listed peers have a presence across verticals such as ATM Managed Services, which include software switching services, ATM maintenance, Security Services, etc. in which Radiant is not active. 

Below is the financial comparison with listed peers:

• In terms of revenue, Radiant is the smallest player, while the highest revenue was generated by CMS for FY22.
• Earning Per Share (EPS) is much lower for Radiant compared to listed peers.
• Return on Net Worth (RoNW) is the highest for Radiant compared to other listed peers.
• In terms of PE, Radiant is slightly expensive compared to the other two listed peers, with a PE of 26.26 (at the upper band), while SIS has a PE of 17.62 and CMS has a PE of 21.79.

Radiant Cash Management IPO: Financials

• For FY20, FY21, and FY22, the company has reported a revenue of Rs 248.27 crore, Rs 221.67 crore, and Rs 286.04 crore, respectively. The revenue has grown at a CAGR of 7.39%.
• The EBITDA for FY20, FY21, and FY22 was Rs 55.77 crore, Rs 49.62 crore, and Rs 59.49 crore, respectively. The EBITDA margins for the same period were 22.15%, 22.20%, and 20.73%, respectively. There has been no significant gain or fall in margins.
• The net profit for the same period was Rs 36.50 crore, Rs 32.43 crore, and Rs 38.21 crore, respectively.
• For the last three financial years, the average EPS and RoNW were 3.52 and 27.8%, respectively.
• The ROCE for FY20, FY21, and FY22 has been 37.91%, 33.33%, and 33.07%, respectively. The ROE for the same period was 30.53%, 25.52%, and 27.34%, respectively.
• The Debt/Equity has increased from 0.18 in FY20 to 0.21 in FY22.

Radiant Cash Management IPO: Unique Selling Propositions

Leading integrated cash logistics player: They are an integrated cash logistics player with a leading presence in the RCM segment and are one of the largest players in the RCM segment in terms of network locations or touch points. Due to the relatively sticky nature of the business, they have a significant ability to cross-sell value-added services such as network currency management and cash processing service.

Pan India presence: They offer services in all districts in the country except Lakshadweep. Of all touchpoints, 55,513 or 86.06% are located in tier 2 and tier 3+ towns and cities. The pan-India footprint enables them to offer services to customers in these areas as they grow their businesses and take advantage of opportunities created by government initiatives.

Diversified client base: Their ability to offer RCM services across India, with a presence in tier 2 and tier 3+ towns and cities has enabled them to attract some of the largest foreign, private, and public sector banks in India as clients. 

Significantly built-up technology: Their technology solutions help their clients to increase their focus on their core competence without a need to make significant investments in operational infrastructure. Over the years, they have enhanced partner engagement and experience through the digitization of processes and augmentation of technology platforms.

Radiant Cash Management IPO: Growth Potential

Capitalize on growth of key end-user sectors: Their end users operate across various sectors, with end users in e-commerce, organized retail, e-commerce logistics, and financial services being their key end-user sectors.

Improve the share of Value-Added-Service: They aim to increase the share of value-added services through different strategies. For example, offer to accept a higher share of low denomination notes and coins which is a big challenge for the banks to handle and dispose of. 

Target direct end-users to improve profitability: The company aims to build a sales organization 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.

Increase market share from unorganized players: They intend to focus their efforts on consolidating their presence in the cash management services industry with a specific focus on the Cash-in-Transit / Cash van operations vertical. It has been the main focus of the unorganized players, who are exiting this business because of the RBI regulations.

Radiant Cash Management IPO: Risks

Business dependent on the banking sector: Their business is highly dependent on the banking sector in India to generate revenues, and any adverse development to Indian banks that affects their utilization of and demand for cash management services could hurt their business.

Limited customer count: Their top five customers in terms of revenue contributed 64.13%, 62.66%, and 66.03% for FY20, FY21, and FY22, respectively. If one or more of their key customers suffer a deterioration in their business, cease doing business with them or substantially reduce their dealings with them, the revenue could decline. 

Operational risks: The business is exposed to operational risks for which they have incurred and expect to continue to incur risk costs and penalties. Any material increase in these costs could hurt their business, results of operations, and financial condition.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.