Buy DAM Capital Ltd For Target Rs.540 - CMS Info Systems Ltd
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Q3FY24 Result Highlights
* Cash Management (64% of rev): Rev +4% qoq (+11% yoy); Margins +80 bps yoy to ~26% (though down 40 bps qoq). Growth mainly led by ~4k touchpoints added in Q3 (total ~133k) – largely on the RCM side.
* Managed Services (35%): Healthy +17% qoq rev growth (+35% yoy) – BLA driven (given festive season) and recent MS contracts, but product revenue surge in Q3 has meant EBIT margins are down ~220 bps yoy/qoq at 17.7%.
* Cards (1%): Rev. up 62% yoy to ~Rs200m (+17% qoq). EBIT margins at 17.4% (vs 8.7% yoy; 11.1% qoq). Expect H1 momentum to continue.
* Key Call Takeaways:
o Cash Management:
(1) Network compliance levels: 85% for ATMs (25% to be cassette-swap compliant by FY24E end) / 40% for RCM / 100% for CIT);
(2) Focus on yield: Ahead of the curve on compliance. Will focus to weed out low yield non-compliant contracts over the next 1-2 years (esp. in CIT).
o Managed Services:
(1) Rs12.5bn orderbook: To be executed over next 2-3 years. 67% of this is non-capital intensive;
(2) ~33k ATM RFPs closed over 9MFY24 by banks. ~20k more to come up in Q4/Q1’25E.
Key positives:
MS segment growth
Key Negatives:
Surge in product sales drives consol.
EBIT margins lower Financials:
~3%/4%/2% cut in FY24E/FY25E/FY26E EPS.
Valuation & View:
CMSINFO remains an inexpensive play on banks’ non-core activities outsourcing industry – especially given lucrative business opportunities in existing segments as well as potential new segments (which are currently small or in the incubation stage). Increasing compliance norms (more prevalent for ATMs today but which should eventually touch RCM/CIT too) is an added potential market-share driver for larger players like CMSINFO over the near to medium-term. CMSINFO is on track to achieve the upper-end of its near-term revenue goal of Rs25-27bn - its relatively high margins versus industry (given scale benefits from its network density) plus cash rich/zero debt balance sheets are other key elements in its favour vis-à-vis competitors. Maintain BUY (DCF target price Rs540 / implied FY26E P/E ~16x / 39% upside).
Key valuation metrics
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