IGI Logo

CMS’ 3Q performance was driven by 36% YoY growth in managed services (MS) segment, which resulted in this segment contributing an all-time high of 40% of consol revenue, ahead of the company’s guidance of achieving it by FY25. Cash management revenue growth was more modest at 11%. Adjusted PAT (after removing ESOP charges) grew 22% YoY. With 17-19% revenue growth guidance for FY24, the implied 4Q growth at mid-point comes to 27%, which should be aided by robust order book in the MS segment. CMS now expects FY25 revenue in the upper half of Rs25- 27bn guidance range. Management stated that while it has been balancing revenue growth and margins well for the past few quarters, it would prioritise market share gains over short-term margins in strategic areas. We maintain our 16% EPS Cagr over FY23-26ii and our TP rises from Rs436 to Rs457 on rolling forward to March-25. The stock trades at 14.8x 1YF PE. Maintain BUY.

Revenue beat driven by MS segment:

Reported Ebitda/PAT grew 11%/15% YoY in 3QFY24. After removing ESOP costs, Ebitda/PAT grew 16%/22%. Adjusted Ebitda margin declined ~85bps YoY due to adverse mix and incubation costs of new businesses. New deal wins in MS segment were stellar. Cash management revenue saw YoY slowdown vs. FY23 due to lower pricing on a CIT contract. However, cash management has grown 3%/4% QoQ in 2Q/3QFY24 led by traction in retail segment on the back of CashX offering (treasury, risk management, working capital management).

Positive management commentary:

Key takeaways from earnings call: 1) Strong deal wins in the MS segment in 9MFY24 provides improved revenue visibility for 4QFY24 and beyond; 2) CMS had 25% share of wins of the 33k ATM contracts awarded in 9MFY24; 3) Rs3.4trn cash handled by CMS in 3Q was the highest ever; 4) Risk cost as a % of revenue came down from 5.1% in FY23 to 4.1% in 1HFY24. It has trended down further in 3Q and CMS targets to take this below 4% in FY24; and 5) capex is likely to spill over from FY24 to FY25, while FY25 will also see some capex increase linked to new deal wins.

We maintain estimates:

While we raise revenue estimates by 3-4%, the upgrade is driven entirely by the lower-margin MS segment. Consequently, we largely maintain Ebitda and PAT. Valuations remain attractive, considering healthy earnings outlook, strong return ratios and an asset- light business model with ~Rs5bn net cash. Key risk: margin pressure.

Please refer disclaimer at https://www.indiainfoline.com/disclaimer
SEBI Registration number is INM000002483