Report on CMS Info system Ltd.

1. Key Metrics :-

CMP – 275

52 WK High/Low – 283/215

M Cap – 4000 Cr

P/E – 27

P/B – 4

EV/EBITDA – 14

P/S – 3.6

Promoter Holding – 65.6%

2. Industry Highlights :-

India’s GDP is forecasted to grow by 9.5% in 2021, which is the highest among the G20 countries.
It is expected to grow by CAGR of 7.9% between 2020-2024.

The cash in circulation (“CIC”) is the total of cash with banks and currency with the public. The CIC in India has grown at approximately 19.8% between March 2020 and March 2021 to approximately ₹28.4 trillion. The growth in CIC was 19.8% despite Covid in the last fiscal year while CIC/GDP reached 15% in FY21.
Macroeconomic deviations (for example, the imposition of goods and services taxes, demonetization and the onset of Covid-19) have not impacted India's CIC growth in the long run. The study of CIC in analogous contexts globally, and the Reserve Bank of India ("RBI")'s own view of CIC suggests that there is little or no correlation between CIC and digital payment penetrations and that CIC will grow in line with nominal GDP. In fact, CIC as a percentage of GDP grew by three to five percentage points as digital payments grew by more than 50% in most economies with high digital payment penetrations. Going forward, CIC is expected to grow at approximately 10% to reach ₹41.5 trillion by Fiscal Year 2025 in India.

Cash velocity (ATM Withdrawal) / CIC in India and comparison across countries :

Because of a strong informal economy, low ATM penetrations and cash's role as a store of value in India, a significant part of the cash in India does not flow in the ATM / banking system. Further, cash velocity in India in 2020, measured by ATM withdrawals is approximately 17% of GDP or 1.5 times of CIC, which is much lower compared to the other countries.

This indicates that there is significant headroom for growth in India for the volume of cash circulated through the ATM / banking system.
India's financial sector remains primarily a banking sector, with commercial banks holding more than 64% of the financial system's total assets. The number of bank account holders in India has increased from 30 crore in Fiscal Year 2012 to 95 crore in Fiscal Year 2021, underscoring the growth that has taken place.
Indian financial services market will continue to grow at a healthy pace (as shown in the chart below) driven by significant under penetration of financial products and services

The under penetration of financial products and services is reflected as follows:

ATM penetration: The ATM penetration rate in India is approximately 22 ATMs per 100,000 individuals at an overall level with semi-urban / rural ("SURU") areas being acutely underpenetrated at 15 ATMs per 100,000 individuals as of 2020. In contrast, the penetration rate for USA, Brazil, China and Mexico is 123, 103, 95 and 62 respectively per 100,000 individuals as of 2020. The global average for ATM penetration stands at 47 ATMs per 100,000 individuals.
Credit cards: With respect to credit cards, India is one of the least penetrated regions with a credit card penetration rate of 3 per 100 individuals.
Insurance: Insurance plays a significant role with respect to the financial services market and India’s under penetration with respect to insurance is evident from the fact that only 35% of individuals are covered by health insurance in the country.
Loans: Less than 10% of the population has access to credit loans in the country.
Investments: India only has approximately 2 million to 4 million retail investors out of 550 million people in its workforce.

Growth of ATMs in India :-

The number of ATMs grew at a CAGR of 20% between Fiscal Year 2011 and Fiscal Year 2016, but the increase between Fiscal Year 2016 and Fiscal Year 2021 slowed down to a 3% CAGR (reaching 255,000 ATMs) due to demonetization, PSB consolidation, and the balance sheet difficulties of PSBs. Given the government's focus on recapitalization and financial inclusion, banks are expected to accelerate retail expansion going forward (both in terms of increasing the number of branches and ATMs).
ATMs have the potential to play a significant role in the financial inclusion of India's rural population, allowing them to take use of more value-added services. The number of ATMs in India is expected to increase from 255,000 as of March 31, 2021 to 365,000 as of March 31, 2027, representing a CAGR of 6.16%.
Despite the government's (including RBI's) attempts to promote financial inclusion, owing to a lack of last-mile connectivity and infrastructure gaps, a large percent of the population in India remained unbanked. Such underpenetrated zones offer room for the number of ATMs and banks branches to increase.
the growth in the number of ATMs and bank branches between Fiscal Year 2010 and Fiscal Year 2027

How bank’s ATM makes money on withdrawal?

When a transaction is made at an ATM, an ATM interchange fee is paid by the bank that issues the ATM card to the bank whose ATM is used to withdraw cash. RBI approved an increase in the interchange fees for financial transactions from ₹15 to ₹17 and from ₹5 to ₹6 for non-financial transactions effective August 1, 2021. The regulation is expected to spur ATM deployment across the country especially in SURU areas with low penetration.

Debit card and credit card penetration :-

According to data from RBI, the growth rate for the number of debit cards issued declined between March 2018 and March 2019. Compared to a 12% growth rate between 2017 and 2018, the growth rate for debit cards issued was only 5% between 2018 and 2019. This was due to RBI's directive that all magstripe cards be replaced with EMV chips by March 2019. While this initially slowed down the growth in the number of debit cards issued, eventually the number of debit cards issued increased after 2020.
Actually, The average value of a debit card transaction is a fraction of the average value of a credit card transaction, its mainly coz large number of debit cards that have been issued compared to the number of credit cards. As of 2021, there are 15 debit cards for every credit card issued.

Is rising UPI payments data and digitalization of Economy a headwind for CMS Infosystem?

Payments for transactions in cash still dominate the Indian retail sector as most of the non-cash payment methods are not available to most of India's population living in rural areas where net banking and other non-cash payment methods have not yet been implemented. Cash still dominates as the most preferred method of payment for retail purchases in these rural areas.

Another key observation was with respect to the significant increase in the CIC for India, which saw an expansion of 19.8% in Fiscal 2021 as compared to a 10.8% growth in Fiscal 2020. Such an increase in CIC stems from the tendency to hoard cash during times of uncertainty to meet liquidity requirements. This shows that currency is still considered as a store of value during volatile situations and this trend is expected to continue.
Cash also retains some inherent advantages over other forms of payment, particularly for small-value transactions (e.g., store of value, availability, legal tender, etc.) and has remained at 40% or more of all transactions (by value) even in advanced economies with well-developed digital payment infrastructure.
While the number of cash withdrawals increased during the peak Covid-19 period, the number of cash transactions with respect to merchant payments declined slightly. In both rural and urban India, the average size of cash withdrawn from ATMs has increased by 20% from ₹3,000 to ₹4,000, up from ₹2,000 to ₹3,000 previously.
Approximately 89.0% of all transactions by volume in India were cash-based in 2020, down from 99.3% in 2011, This means that despite an increase in digital transactions in India, about 90% of payment transactions are still cash payments.
India's unorganized retail, organized retail and e-commerce accounted for 88%, 9% and 3% respectively of the retail market in Fiscal Year 2019. In Fiscal Year 2021, these percentages stood at 75%, 18% and 7% respectively.
India's organized retail market is increasing at a 20% to 25% annual rate and is expected to contribute to 30% of the retail market by Fiscal Year 2025.
The usage of cash for transactions in the Indian economy has shown resilience even with Covid-19. While the volume of transactions in cash declined 12% during the peak of Covid-19 compared to the months immediately preceding Covid-19, with the Covid-19 situation improving, the average volume of transactions in cash for the Covid-19 period (till March 2021) is at 90% of the volume immediately preceding Covid-19.
80% of the merchants in non-metropolitan regions and 66% of the merchants in metropolitan regions prefer to receive payments in cash as they need to make payments to their vendors in cash.
Despite the effects of demonetization and Covid-19, cash is still the most preferred method of payments as compared to other payment methods. It is estimated that cash payments will account for 61% of all payments in the economy in Fiscal Year 2025.

E-commerce and cash on delivery ("COD") in India :-

COD is the most used payment method for e-commerce transactions in India. In 2020, along with e-commerce retailers' expansion into tier 2 to tier 4 cities, COD constituted more than 65% of all e-commerce payments, indicating the significance of cash for e-commerce payments. COD payments become more prevalent as we move from metropolitan regions (approximately 50% of all transactions use COD) to lower tier regions such as tier 2 regions (approximately 70% of all transactions use COD) and tier 4 regions (approximately 90% of all transactions use COD).
As the e-commerce penetration increases in these lower tiers regions, the market share for COD payments is also expected to increase correspondingly.

ATM market :-

CE Infosystem has the widest service offering and we deliver integrated solutions across the value chain in the ATM market.

ATM deployments in India had witnessed a slowdown after the government announced its plan for demonetization in 2016–17. Banks were battling against the country's inadequate cash supply. Subsequent to this, several factors (including PSB's consolidation and RBI's mandate to improve PSB's balance sheets, which resulted in a reduction in expenditure, including ATM deployments) have contributed to a halt in ATM deployments in India. The demand for cash and cash-related services in India has increased; banks and other participants in India are deploying more ATMs, which is reflected in the increase in the number of ATMs in India from 223,000 in Fiscal Year 2019 to approximately 255,000 in Fiscal Year 2021, representing a CAGR of 6.93%.

India has a higher number of ATMs deployed compared to some countries in the world. For instance, the number of ATMs in India (255,000) is approximately equal to the combined total number of all ATMs in Germany, UK, France, Spain and Italy. India has a significantly higher number of ATMs due to a larger population base, the country is significantly underpenetrated on a per capita basis.

India falls behind most markets (such as the US, UK and other BRIC countries) in terms of ATM penetration. India has one of the lowest ATM penetration rates in the world, with only 22 ATMs per 100,000 individuals, compared to a global average of 47 ATMs per 100,000 individuals.

Despite India having one of the lowest ATM penetration rates in the world, India is the third largest ATM market in the world based on the number of installed ATMs, after China and the US, and is expected to grow at a CAGR of 6.16% from 255,000 as of March 31, 2021 to 365,000 as of March 31, 2027.

-According to data from SDG Niti Aayog, Delhi had the most ATMs per 100,000 population (41), followed by Tamil Nadu (35) and Telengana (29). In 2020, Uttar Pradesh was the state with the third highest GDP, and is the most populous state in the country.
In the next six years, approximately 110,000 new ATMs will be cumulatively added, with an additional 198,000 replacement demand; more than half of these will be deployed under the BLA model. 365,000 ATMs are likely to be installed, driven by pent-up demand and the need to address under-penetration in the SURU regions, as well as a shift from CAPEX to OPEX-based deals for banks (e.g. BLAs), and with additional upside expected given the increase in interchange fees

Market drivers for ATM deployments :-

Highly underpenetrated market: In order to achieve an ATM penetration of 50 ATMs per 100,000 individuals, India needs to add 400,000 ATMs (2.5 times more ATMs than those currently deployed). The under-penetration of ATMs in India is more pronounced in the SURU areas where the ATM density is approximately 15 ATMs per 100,000 individuals. Based on the foregoing, there is a large headroom for growth with respect to ATM deployments in India.
Pent-up demand: the number of available ATMs has not increased to match this growth in the number of debit cards issued. PSBs are resuming expansion of their ATM networks after a period of stagnation as evidenced by the recent increase in requests for proposals ("RFPs") for ATM implementation.
Increase in Interchange: Interchange fees for financial transactions through ATMs increased from ₹ 15 to ₹ 17 starting August 1, 2021. WLA operators with a 15% annual growth and net acquirer banks business models will benefit the most owing to the increase in the interchange fee. Overdue replacement cycles will be expedited owing to the interchange increase as operators will look to capitalize on revenue generation through increased deployments.

Retail Cash Management (RCM) constitutes cash pick-up and delivery and treasury solutions for retailers. The RCM market is estimated at INR675 crores in Fiscal Year 2021 and is projected to reach a market size of INR2,043 crores by Fiscal Year 2027. The growth in the organized retail sector as well as the corresponding outsourcing potential is expected to be prime factors for the development of the RCM market in India.

CIC is predicted to grow at a robust more than 10% rate in the future, roughly in line with or slightly slower than India's long-term nominal GDP growth. By 2027, CIC is estimated to reach ₹ 50 billion.
Competitive landscape of the cash management industry in India

Due to the high entry barriers, regulatory oversight and technological improvements, the industry landscape is highly concentrated globally. In developed economies, such as the UK, banks have raised the barriers to entry through strict regulations (e.g. by only allowing registered commercial entities to manage wholesale distribution) for its Note Circulation Scheme (NCS), making it difficult for new service providers to enter the market while also forcing existing service providers to rethink their strategy and service differentiation.
MNCs such as Brinks (US), Loomis (Sweden), Prosegur (Spain), G4S (UK), GardaWorld (Canada) and Alsok (Japan) dominate the cash management global market. These MNCs have made increasing profitability and growth through better value-added offerings a top goal.

The ATM product market size is estimated at ₹645 crores in Fiscal Year 2021 and is expected to reach a value of ₹2480 crores by Fiscal Year 2027 (representing a CAGR of approximately 25%). This high growth is primarily driven by the number of addressable new and replacement machines growing at approximately 17% annually and an expected increase of 5% to 6% in realization owing to higher share of cash recyclers as a proportion of total ATMs over the forecast period.
AMC :- Service providers (usually OEMs) supply and install ATMs for customers, which then engage with such suppliers to provide maintenance on ATMs during the contract period. Under such AMCs, with these customers, service providers usually deliver second line maintenance for their ATMs, including the provision of remedial hardware maintenance, replacement parts and preventative maintenance. The duration of each AMCs ranges between 8 to 10 years, renewable at the option of the parties and the service provided is paid a fixed AMC fee, in annual, semiannual or quarterly installments. AMCs are applicable to all ATMs across the total installed base in India. The AMC market, therefore, has a direct correlation with the growth of the ATM market in India. the AMC market is expected to grow from ₹734 crores in Fiscal Year 2021 to ₹1,314 crores in Fiscal Year 2027 with a CAGR of 10%, primarily driven by an increase in the ATM stock and increase in realizations.

The average realization rate for such AMCs are also expected to grow at 4% CAGR from ₹2,400 in Fiscal Year 2021 to ₹3,000 by 2027, propelled by factors such as market competition, inflation, and shift towards cash recyclers.

ATM remote monitoring :- ATM remote monitoring includes video remote monitoring of sites, both live and trigger-based, distributed or centralized, typically harnessing a two-way audio mechanism and access to quick response teams. Beyond conventional services, remote monitoring could also include other value added services, such as video analytics customer behavior information, remote camera health monitoring, IoT, etc. The number of sites for ATM remote monitoring is expected to increase from 400,000 in Fiscal Year 2021 to 580,000 by Fiscal Year 2027.

Multi-Vendor Software ("MVS") Solutions :- MVS enables financial institutions to streamline their development and support operations by eliminating the need to maintain and enhance several distinct delivery infrastructures for each new function or service they provide. With players moving in and out of the OEM market, MVS offers security against churn to the banks. MVS also brings cost and operational benefits by eliminating the costs associated with upgrading and managing ATM software. Banks can also leverage their security functions with MVS to manage the changing security guidelines, RBI encryption mandate, etc. In Fiscal Year 2021, out of an addressable market size of 195,000 ATMS, 110,000 had migrated to MVS ATMs. This number is expected to increase up to 260,000 by Fiscal Year 2027 and will penetrate 100% of the addressable market, predominantly driven by the shift of PSBs to MVS ATMs.
The competitive landscape for the ATM managed services in India is dominated by 10 to 12 companies, ranging from software conglomerates to financial technologies solution companies to ATM manufacturers. While there are specialist OEMs as well as MSPs in the market, CMS Infosystem is one of the few that is present in the entire value chain, including software and technology solutions.

Total Available Market for Cash Management, Managed Services, MVS and Remote Monitoring :- The total available market for cash management (ATM cash management, RCM and DCV) product sales (including AMC), ATM managed services (managed serviced ATMs and BLAs), MVS and remote monitoring stood at ₹ 8,531 crores in Fiscal Year 2021 and is estimated to reach a size of ₹ 21,412 crores in Fiscal Year 2027, growing at a CAGR of 16.6%

3. CMS INFOSYSTEM Overview :-

CMS Infosystem is the India’s largest cash management company based on number of ATM points and number of retail pick-up points as of March 31, 2021, as well as one of the largest ATM cash management companies worldwide based on number of ATM points as of December 31, 2020. For Fiscal Year 2021, their total currency throughput, or the total value of the currency passing through all of their ATM and retail cash management businesses, amounted to ₹9,158.86 billion.

Sion Investment Holdings Pte. Limited, The Promoter, which acquired the Company in 2015 and is an affiliate of Baring Private Equity Asia, a private equity firm that has over US$23 billion assets under management as of December 31, 2020. Sion is primarily engaged in the business of investments, including but not limited to private equity investments whether directly or indirectly through any special purpose vehicles or otherwise.
They have businesses of installing, maintaining and managing assets and technology solutions on end-to-end outsourced basis for banks under long term contracts.

4. Business Segments :-

They have mainly three business segments :-

Cash management services, which include end-to-end ATM replenishment services; cash pick-up and delivery; network cash management and verification services (together known as “retail cash management services”); and cash-in-transit services for banks, accounting for 68.61% of our revenue from operations in Fiscal 2021 and growing at a CAGR of 0.31% from Fiscal Year 2019 to Fiscal Year 2021
Managed services, which include banking automation product sales, deployment and associated annual maintenance; end-to-end Brown Label deployment and managed services for banks; common control systems and software solutions, including multi-vendor software solutions and other security and automation software solutions; as well as remote monitoring for ATMs, accounting for 27.88% of our revenue from operations in Fiscal 2021 and growing at a CAGR of 35.88% from Fiscal Year 2019 to Fiscal Year 2021
Others, which include end-to-end financial cards issuance and management for banks and card personalization services, accounting for 3.51% of our revenue from operations in Fiscal 2021.

their cash management business is largely route-based in nature with 78.11% of revenue in Fiscal 2021 being generated from activities where route density drives profitability and enables operating leverage. their managed services business on the other hand is largely recurring in nature with 52.45% of revenue in Fiscal 2021 being generated from long-term contracts, which provides high revenue visibility.
India has one of the lowest ATM penetration rates in the world, with only 22 ATMs per 100,000 adults, compared to a global average of 47 ATMs per 100,000 adults as of December 31, 2020, and the GoI has undertaken initiatives aimed at increasing financial inclusion to give greater access to bank branches and ATMs, in particular in semi-urban and rural regions where ATM penetration is very low at 15 ATMs per 100,000 adults as of December 31, 2020, while payments in cash, which continues to be the primary medium of transaction in India, accounted for approximately 89% of all payment transactions in 2020.
The company has a fleet of 3911 cash vans and has a network of 224 branches and offices as of March 2021. with this network they have served over 133,000 business points across ATM cash management, retail cash management, & managed services businesses in fiscal 2021.

5. Financials :-

For Fiscal Years 2019, 2020 and 2021, we generated revenue from operations of ₹11,461.59 million, ₹13,832.38 million and ₹13,060.90 million, respectively, and profit before tax of ₹1,499.29 million, ₹1,950.61 million and ₹2,377.50 million, respectively.

Balance Sheet :-

Profit & Loss Statement :-

6. Key trigger for Growth :-

Leading player in a consolidating market with strong fundamentals :- As of March 31, 2021, they are India’s largest cash management company based on number of ATM points and number of retail pick-up points and had a market share of 24.7%, based on the total number of ATMs in India, as well as a market share of 41.1%, based on the total number of outsourced ATMs in India. For Fiscal Year 2021, their total currency throughput, or the total value of the currency passing through all of the ATM and retail cash management businesses, amounted to ₹9,158.86 billion. It is expected to grow by around 6% in next 5-6 years.
The market share of the two largest ATM cash management companies, one of which being this Company, has increased from 58.0% in Fiscal Year 2018 to 74.0% in Fiscal Year 2021, while the number of cash management companies with over 5.0% market share has decreased from six to four. It is mainly due to high entry barrier in the industry.
Increasing cash in circulation, which has grown at a CAGR of approximately 13% from 2001 to 2021 and is expected to continue to increase at a CAGR of approximately 10% from Fiscal Year 2021 to Fiscal Year 2024 as GDP continues to grow.
The increasing number of ATMs in India, which has increased from approximately 223,000 in Fiscal Year 2019 to approximately 255,000 in Fiscal Year 2021, and the increase in the number of banks, in particular public sector banks, that outsource their ATM servicing as the current base of ATM and cash management assets of banks come up for renewal and replacement over the next three years.
Growing access to banking services in India, such as debit cards, which have increased at a CAGR of 8% from 2015 to 2021 and numbered 805.3 million cards as of December 31, 2020 and are expected to increase the number of debit card transactions as the number of ATMs and ATM penetration in rural areas increases; this, in turn, is expected to drive further investments by banks in their ATM networks.
As the demand for cash and cash-related services in India has increased, banks and other participants in India are outsourcing their cash management needs, such as through Brown Label ATM, and other managed services, in order to drive better ATM management and accountability. Brown label ATMs are currently expected to increase from 86,000 as of March 31, 2021 to 180,000 as of March 31, 2027, and the outsourcing of ATM cash management services is expected to increase from 59.0% as of March 31, 2021 as a percentage of the total number of ATMs in India to 69.0% as of March 31, 2027.
In 2017, they've acquired the business of a small Brown Label ATM services company (including its ATM outsourcing business contracts to increase their capacity to provide Brown Label ATM services to mid-sized banks and other customers and have successfully scaled up that business to providing Brown Label ATM services for 3,120 ATMs as of March 31, 2021 In addition, in 2019, they entered the multi-vendor software solutions segment and are now a leading player for multi-vendor software opportunities in India.
They've also entered the remote monitoring segment in 2021 and have an order book for 14,920 ATM sites as of July 31, 2021 based on two contract wins of 9,520 and 5,400 ATMs, respectively. With their expanded service and product offering, they are present in all major market segments in the cash management and ATM managed services industry, which means they're able to offer integrated services to customers and provide them with 'one-stop' solutions, which also provides them with a competitive advantage for future projects.
Systems and processes to manage and scale an operationally complex business :- In Fiscal Year 2021, they completed 6.7 million ATM activities and 6.0 million retail cash management pick-ups. Managing and coordinating movements of large volumes of cash and the various other services involves complex planning and logistics that can have a significant impact on performance and profitability. In order to maximize the scalability of operations, they leveraged customised systems and processes that are designed around internally developed applications tailored to cater to the specific requirements of the Indian banking sector and other customers.
they have implemented technology platforms, such as CMS Connect, which facilitates critical processes in ATM operations, and CMS ALGO, their fully automated, mobility based, ATM security application, which reduce the time spent on pre- and post-route activities and during first line ATM maintenance calls and replenishments, respectively. They have also developed and implemented AGILE, which is a risk management solution that tracks, reconciles and resolves reconciliation issues between us and our customers. These systems monitor and track the allocation of resources across the businesses, enabling the company to minimize the duplication of efforts and resources and drive operational efficiencies. These systems also allows to automate certain processes within company's operations, helping all to reduce human error and optimize costs associated with all employees and the third-party service providers and third-party security service providers from whom we procure services.

7. Risk Associated :-

Risk management processes and procedures are carried out by four separate departments, which ultimately report to their business unit head. The four departments include Reconciliation, Audit, Insurance and Security, which have the following key responsibilities:

Reconciliation: Chargeback resolution, technical investigation, data analytics and MIS, and customer engagement
Audit: Cash inventory audit, process compliance, special audits and certifications
Insurance: Policy renewal, claim intimation and settlement
Security: ATM and route audits, liaising with enforcement authorities, preventive risk assessment andconduct security trainings.

8. My take on this :-

Valuations are little stretched right now as it came with an IPO, A Price to Sales of 1-2, Price to Earning of 18-22, EV/EBITDA of 10-12 will be very favourable for entry.
Growth is clearly visible with stable margins and Operating efficiencies at larger scale. The company is best poised for next decade.
I am not invested as of this date, of writing the blog but as i stated about the valuations, if i get the desired valuation, I'll enter for long term investment.
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