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Managed services saw remarkable growth

Managed services revenues grew faster than overall revenues at ~35.9% YoY with decent EBIT growth of 19.9%, partly attributed to a margin contraction from 20% in Q3FY23 to 17.7% in Q3FY24. Managed services margin was lower due to mix change. The company has seen strong growth in product sales and pure managed services business, both asset light and low capex businesses in 9MFY24. Delay in RFPs has pushed the capex intensive business to FY25 – mainly the remote monitoring businesses and BLA. Managed services now forms 37% of the total business vs 32% in Q3FY23 and 33% in Q2FY24. We factor in a revenue 24% CAGR FY23- FY26E in the managed services business.

New Order Triumph: Q3FY24 Boasts a Whopping Rs.6bn Win, Surging YTD Order wins to a Staggering Rs.12.5bn

CMS secured new orders in the managed services business amounting to Rs. 6bn in the quarter primarily in the asset light segments of banking automation and ATM as a services business and the overall order book increased to Rs.44bn. CMS has also won mandate for AIoT Remote monitoring solution for 2000 new sites in 9MFY24. The ARR in this business is north of Rs. 1bn

Cash management business growth lower due to higher base

Total touchpoints serviced across retail and ATM business increased to 133K in 9MFY24 vs 129K in H1FY24 resulting in revenue growth of ~11% for cash management segment and is expected to grow between 10-13%. We estimate growth in this segment at ~10% CAGR FY23- FY26E. Cash management EBIT was higher by 14.2% YoY to Rs. 976mn with margins slightly lowered to 26% compared to 26.4% in Q2FY24 but the same increased by 80bps on YoY.

Option value yet to be unlocked in certain business segments

CMS Info Systems has seen strong traction in the AIoT and remote monitoring businesses. This business is scaling well, and the company is also looking to pilot the business in non-BFSI segments such as warehousing, logistics, etc. The addressable market size and opportunity is vast in the business while the company’s ARR is ~Rs. 1bn. The company expects to close ~25K sites by end of the year. Additionally, the company has been piloting the collections business for NBFCs, which should kick-start FY25E onwards.

Guidance unchanged: Expect revenue at higher end of guidance in FY25E of Rs. 27bn

Management believes that the aspiration for doubling FY19 revenue by FY25E is on track and expects to achieve Rs. 27bn revenue by FY25E, at the higher end of the guidance of Rs 25bn- Rs. 27bn. The growth should be driven by tailwinds in retail cash management business, pure managed services, product sale and tech driven business. It is expected that managed services will grow faster while cash logistics business is expected to grow ~10-13% CAGR. Capex of Rs. 1,500mn in FY24E has been lowered due to delay in RFPs and will be pushed to FY25E.

Valuations attractive: Maintain BUY recommendation at 16x FY26E EPS

We maintain a BUY rating on the company with a TP of Rs. 500 based on FY26E P/E of 16x and EPS estimate of Rs. 31. We expect the company to deliver Sales / Adj PAT growth of 15% / 18% CAGR GY23-FY26E with an RoIC of 28% in FY26E. The company has a payout ratio of ~25%.

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