IPO Note - CMS Info Systems Ltd By Choice Broking
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Salient features of the IPO:
* Backed by Baring Private Equity Asia, cash management company CMS Info Systems Ltd. (CMS), is coming up with an IPO to raise Rs. 1,100cr, which opens on 21st Dec. and closes on 23rd Dec. 2021. The price band is Rs. 205 - 216 per share.
* The issue only has OFS portion, thus the company will not receive any proceeds from the IPO issue.
Key competitive strengths:
* Leading player in a consolidating market with strong fundamentals
* Pan-India footprint with deep penetration in growing markets
* Longstanding customer relationships leading to increased business opportunities
* Integrated business platform offering a broad range of services and products
* Systems and processes to manage and scale an operationally complex business
* Track record of strong productivity and operational excellence
* Experienced and highly qualified management team
Risk and concerns:
* Unfavorable government policies and regulations
* Unexpected decline in cash in circulation in the economy
* Decline in the financial position of the banks, thereby affecting the expansion of the ATM network and outsourcing activities
* Sustained cost inflation
* Inability to maintain the profitability
* Competition
Below are the key highlights of the company:
* Between Mar. 2020 to Mar. 2021, the cash-in-circulation (CIC) in India has grown by 19.8% to around Rs. 28.4tn, which as a percent of GDP was 15%. Based on the global studies and of the RBI, there is no corelation between CIC and digital payment penetrations. However, CIC is likely to grow in-line with nominal GDP. Consequently, CIC is expected to grow by 10% to reach Rs. 41.5tn by FY25. Further being a strong informal economy with low ATM penetrations and cash’s role of a store-of-value, we feel that cash will continue to be the most preferred mode of payments as compared to other methods.
* India has lower cash velocity (measured by ATM withdrawals, which is 1.5x of CIC) as compared to other developed and emerging economies, thus there is significant headroom for growth in the volume of cash circulated through the ATM / banking system.
* Cash management companies mainly provide three main services to their customers, namely: ATM cash management, retail cash management (RCM) and dedicated cash-in-transit van (DCV). Companies also provide other services such as transportation of jewels, art works, valuables & bullion, cash processing and cash vault services. The domestic cash management market has grown by around 10% CAGR between FY10-21 to Rs. 27.7bn in FY21. Further it is expected to rise by 19.1% CAGR to reach a size of Rs. 79bn by FY27E. Key drivers for growth will be the lower penetration of ATMs, uptick in the outsourcing by the banks, consolidation in the sector, increase in interchange fees etc.
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