A Stealthy Whale in the Cash Managment Business

“CMS is one of the more unique players which cuts across all the product lines whether it is Cash Management, Remote Monitoring, Managed Services, Automation or Software. I think CMS remains one of the largest and the strongest companies for the last decade in the sector. Our idea is to keep offering solutions to BFSI and retail and grow along with that.”

– Rajiv Kaul, Executive Vice Chairman, Whole Time Director & CEO

Stock Data
Ticker	CMSINFO
Exchange	NSE & BSE
Industry	Diversified Commercial Services

Price Movement
Last 5 Days	+0.74%
YTD	+24.01%
Last 12 Months	+25.01%

Company Description:

CMS Info Systems Ltd. is India’s largest cash management company in terms of reach both in its sheer volume of ATM points as well as in the number of retail pickup points. Along with the cash management division, the company has diversified into managed services. CMS Info Systems Ltd. has transformed itself from solely a cash management firm into a technology solution and service provider as well. 

Grasped the Pulse of the Cash Cycle Chain in India

India is largely a cash – centric economy. So, ATMs serve a vital purpose in the country. Despite having one of the highest numbers of ATMs in the world, India has one of lowest ATM penetration rates in the world. So, this particular scenario provides CMS with a huge opportunity. CMS is the largest player in a market that does not show any signs of slowing in the short term. 

Apart from ATM Cash Management Services, the company provides Banking Automation Services, Brown Label ATM services, Software Solutions regarding ATM services and Remote Monitoring Services for ATMs and Bank Branches. Other than ATM centric services, the company also provides transit services, currency chest automation and processing services and retail cash management services. So, it is quite evident that CMS Info Systems Ltd. has acquired a dominant presence across the cash cycle chain in India. 

To further elaborate on the tailwinds to this segment:

Outsourcing – Majority of the operations around ATM management and services are still not being outsourced by the banks. However, the trend towards outsourcing cash management operations has picked up pace and the trend should continue owing to the fact that the formalisation of the economy is underway.

RBI Mandates – The Reserve Bank of India has passed mandates that provide a set of guidelines that must be carried out by operators. In order to meet these cash management standards, the banks would prefer to outsource their needs in a formalised manner rather than outsource to local companies.

Low Penetration Rates – As mentioned before, the low penetration rates of ATMs in a cash centric economy like India naturally provides the sector with a huge incentive to expand their operations.

Consolidation of the Market – This segment of the business has observed a trend of consolidation among key market players like CMS. The contract duration for these services are for 5 years on average. So, trust plays a crucial role in obtaining these long term contracts. CMS Info Systems Ltd. has obtained trust of its business partners with its successful track record. These business relationships within the BFSI and Retail sectors provide CMS with cross selling opportunities for other technological services. 

Paradigm Shift in Targeted Business Segments to move up in the Value Chain:

The natural question that occurs when analysing a company that is heavily invested in the cash cycle chain is whether the shift to electronic payments stands as a major obstacle on the company’s long term growth prospects?

When we look at the trends in the payments world, it is evident that UPI has affected the credit card and debit card business. However, cash does not seem to be adversely affected by the change. Additionally, semi urban and rural areas in India are still very dominantly cash centric regions which poses itself as an opportunity for CMS. The short term industry dynamics suggest that the next 5 to 10 years might still be safe in terms of any adverse effect on cash’s dominance in India.

CMS Info Systems Ltd.’s management has indicated that the company has planned other new revenue generating services to slowly transform from a cash management company to technology solutions and service provider to BFSI sector and Retail sector by leveraging their industry relationships, cross selling opportunities and agile company structure.

Future Guidance and Equity Performance:

“I think our focus remains on executing strongly and continuing the momentum. Before listing and during our earlier calls we have sort of given guidance saying that our company revenue in FY21 was roughly INR 1,300 crores. Our goal remains to double that to roughly INR 2,500 to 2,700 crores by FY25. We are on track to hit those numbers. We started FY22 well. FY23 has also started off well and with the good wishes and luck hopefully we will get to that number soon.”

– Rajiv Kaul, Executive Vice Chairman, Whole Time Director & CEO in the Q2FY23 Earnings Call

The management suggests that their company might double their revenues from FY21 to FY25. The progression and the company’s bottom line suggest that the company has the potential to reach these estimates. 

Considering some of these valuation ratios relative to the future guidance, it might be the case that CMS Info Systems Ltd.’s equity is possibly undervalued. However, it is to be noted that equity price movements consider a lot of factors other than the ones stated above. Thus, reader discretion is advised.

CMS Info Systems Ltd. Valuation Ratios – 

Valuation Ratios	As of 18th Oct, 2022
P/E	18.8
Price to Sales Ratio	3.09
EV/EBITDA	10.37
PEG Ratio	0.81
Price to Book Value	3.75