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CMS Info Systems’ (CMS) 1QFY24 performance was a modest miss on revenue front, though strong margin performance led to beat on PAT (4% above JMFe). Revenue grew 13% YoY (+2% QoQ, 3% below JMFe), driven by steady growth in the cash management (CM) business (+12%YoY/flat QoQ, 2% below JMFe) and managed services revenue (12% YoY/7% QoQ, 2% below JMFe). EBITDA margin improved 150bps YoY/ 10bps QoQ (50bps above JMFe) on the back of efficiency gains and operating leverage. On the operational front, CMS business touchpoints in CM segment at 126k, +10% YoY, while it posted 6% YoY growth in handling of currency in 1QFY24 (highest-ever quarterly currency throughput of INR 3.3trn) and it won INR 1.5bn worth orders during 1QFY24 in managed services segment. CMS is firm on its long-term guidance of doubling revenue from FY21 to FY25. We broadly maintain our FY24-25 EPS estimates. The company remains on a strong footing given its robust business model (significant market leadership in the CM segment, strong track record of diversification and strong earnings growth and return profile (FY25E ROIC >40%). We roll forward our TP to June’24 of INR 465, valuing it at 17xJune’25EPS. Sharp reduction in cash in circulation and delay in compliance implementation remain key risks to our call.

* Steady revenue growth momentum: CMS’ total revenue grew +13% YoY/+2% QoQ to INR 5.1bn (3% below JMFe) driven by cash management (CM) segment (+12% YoY/ flat QoQ, 2% below JMFe) and Managed services (MS) segment (+12% YoY/ 7% QoQ, 2% below JMFe). Company successfully implemented managed service mandate of 5200+ ATMs for large PSU bank, becoming the largest Managed Service provider for the bank. The steady growth momentum supports the management’s revenue guidance of INR 25- 27bn for FY25E (CAGR of c.17-18% over FY23-25E). Overall EBITDA grew by 19% YoY/+2% QoQ while PAT grew 22% YoY to INR 843mn (4% above JMFe).

* Cash management profitability rises to record levels: CM EBIT grew by 22% YoY/+1%QoQ to INR 939mn (1% above JMFe) while margin improved by 220bps YoY/10bps QoQ to record 26.8% in 1QFY24, primarily on account of efficiency gains and operating leverage. Further, MS EBIT grew by 11% YoY/+15% QoQ to INR 328mn and margin contracted 30bps YoY/+130bps QoQ to 19.9%. Management highlighted a strong momentum in cassette swap implementation and expects up to 40% implementation by FY24 and also expressed trend of optimism among retail organisations as many large modern retailers penetrating into tier 3 and below cities, which augurs well for the retail cash management business. During the quarter, ATMs under managed services grown to 18,000 (+500 ATMs QoQ) in June’23. CMS achieved no. 1 position in AIoT remote monitoring in banking with 21,000+ live site and sustains it market leadership in the cash management business with 40% market share.

* Maintain estimates; BUY: We broadly maintain our FY24-25 estimates for CMS as it is on track to meet its medium-term guidance on the revenue front; margin performance has also improved consistently. We introduce Mar’26 estimates and roll forward to June’24TP of INR 465, valuing it at 17xFY25EPS. CMS remains on a strong footing given its robust business model (significant market leadership in the CM segment, strong track record of diversification and strong earnings growth and return profile (FY25E ROIC >40%). Sharp reduction in cash in circulation and delay in compliance implementation remain key risks to our call.

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