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CMS Info Systems’ (CMS) 1Q revenue was 2% above JMFe while lower-than-expected margins led to miss on EBITDA/ PAT.  Revenue grew 17% YoY led by 10% YoY growth in the cash management (CM) business and 35% YoY growth in managed services (MS). Despite a seasonally weak quarter and lower activity during election, CMS maintained its growth momentum. The total cash business points stood at 140k (+11% YoY), and net additions were largely in retail cash management (RCM). CMS has reiterated its confidence of achieving the upper end of the revenue guidance of INR 26bn-27bn in FY25 on the back of a) sustained additions in the RCM led by growing share of organised retail, b) scale-up in AIoT remote monitoring (CMS has won a large unified mandate in remote monitoring for 2000 branch locations during the quarter) and c) new business initiatives. We believe CMS will further strengthen its footing given its robust business model, significant market leadership in the CM segment (market share improved from 39% in FY19 to 49% in FY24), strong track record of diversification and strong earnings growth and return profile (FY25E RoIC >35%).  We have tweaked our FY25-26 estimates and arrived at a Mar’25TP of INR 620, basis 20xMar’26EPS (earlier 17x FY26EPS). Sharp reduction in cash in circulation and delay in compliance implementation remain key risks to our call.

* Growth momentum sustains: CMS’ total revenue grew +17% YoY to INR 6bn (2% above JMFe) driven by strong growth in managed services (+35% YoY, 11% above JMFe) and sustained growth momentum in cash management segment (+10% YoY, in line with JMFe); however, revenue declined sequentially (-4% QoQ). The robust growth was despite a seasonally weak quarter and lower activity during general elections. The growth reflects that the company is on track to achieve the upper end of revenue guidance of INR 26bn-27bn for FY25E. On the profitability front, gross margin contracted 670bps YoY (+100bps QoQ) to 68.9% largely on account of higher mix of product sales. EBITDA margin contracted 340bps YoY (+60bps QoQ) to 25.4%. EBITDA grew 3% YoY (-2% QoQ) while adjusted EBITDA (adjusting for non-cash expense) grew 8% YoY. Reported PAT grew 8% YoY (-1% QoQ) to INR 908mn (1% below JMFe) while adjusted PAT grew 13% YoY (1% below JMFe).  

Cash business points grew 11% YoY, additions mainly in RCM: CM EBIT grew 5% YoY/ flat QoQ to INR 986mn in 1QFY25 as EBIT margin contracted 130ps YoY (+10bps QoQ) to 25.5%. Cassette swap implementation is on track, and the company is targeting 35% by Mar’25 (achieved 15% by Mar’24). During the quarter, the number of cash logistics business points grew 11% YoY to 140K points. The additions were largely in the retail cash management business. The company will continue to focus on growing organically over acquisitions and seek opportunities to expand into bullion logistics and collections (it is already running a pilot project and has signed up 15+ contracts). 

* Robust growth continues in MS segment: MS EBIT grew +10% YoY (-6% QoQ) to INR 359mn while margin contracted 130bps YoY (+20bps QoQ) to 16.2% on account of higher mix of product sales. CMS has currently 25k+ AIoT remote monitoring sites and is developing an end-to-end platform. MS segment contribution to overall revenue increased to 37% vs. 33% in 1QFY24. In the MS business, the company won orders of INR 2bn in 1QFY25, despite it being a seasonally weak quarter, to be executed over the next 2-3 years (total order wins during FY24 was INR 18.5bn). From the risk-mitigation perspective, the company continues to focus on non-transaction linked opportunities (transaction-linked BLA sites are less than 3,500 for the company).  Of the 50K ATMs (40K for replacement and 10K new additions) for the industry, several RFPs processes have faced delays and spilled over to FY25 and, therefore, we see increased momentum of ordering and, hence, growth in MS in FY25/26.

* Maintain BUY: We tweak our FY25-26 estimates and arrive at a Mar’25TP of INR 620, basis 20xMar’26EPS (earlier 17xMar’26EPS). 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 >33%). Sharp reduction in cash in circulation and delay in compliance implementation remain key risks to our call. We transfer the coverage to Vineet Shanker.

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