Buy CMS Info Systems Ltd for Target Rs. 620 by Elara Capitals
In-line Q4; expect stronger FY26
CMS Info Systems (CMSINFO IN) posted a 1% YoY decline in revenue in Q4, as a 7% YoY growth in the Cash Logistics segment was offset by a 5% decline in the Managed Services segment (mainly on account of a delay in orderbook execution). The revenue decline in Managed Services was driven by delayed execution, which CMSINFO had mentioned in earlier calls.
CMSINFO has executed ~52% of past five quarters’ order wins (INR 1.2bn) and thus, delayed execution has deferred revenue. In FY26, pending orderbook for execution is INR 1.4bn. EBITDA margin rose 140bps YoY to 26.2%. Margin improvement was mainly attributable to the cards segment. Margin for Managed Services was lower by 90bps YoY due to a mix change. Overall EBITDA grew by 4% YoY and PAT by 7% YoY.
Targeting greater share of managed and tech solutions segment: In FY25, the cash logistics versus managed services/technology mix stood at 60:40, with a target of reaching 55:45 in the next 4-5 quarters. CMSINFO is aspiring for a 14-17% revenue CAGR in FY25-27, with revenue from managed and tech solutions business compounding at >25% in the same period.
Industry consolidation playing out; opportunity for CMSINFO in the medium term: CMSINFO’s large competitor in Cash Logistics and Managed Services segments has faced operational challenges due to high balance sheet leverage, leading to a disruption and instability for bank partners. This will likely lead to a shift in relationships and contracts to CMSINFO, thereby aiding growth
Reiterate BUY at enticing valuations: We value CMSINFO at 20x P/E FY27E EPS of INR 32, translating into a TP of INR 620. The current price does not fully reflect the value of cash on the balance sheet (12% of market capitalization), and stable operating cash flows owing to annuity and long-term contracts.
The unexecuted order wins in the past five quarters provide strong momentum in FY26. The CMP implies a 10-year earnings CAGR of 12%, assuming 14x exit multiple. This is substantially lower than the near-term earnings CAGR estimated at 17% through FY25-27E. We believe this earnings trajectory is achievable.
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SEBI Registration number is INH000000933
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