Cms Info Systems Ltd (CMSINFO) Q1 FY23 Earnings Concall Transcript

Cms Info Systems Ltd  (NSE:CMSINFO) Q1 FY23 Earnings Concall dated Jul. 28, 2022

Corporate Participants:

Dhiral Shah — Senior Research Analyst

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Pankaj Khandelwal — President and Chief Financial Officer

Anush Raghavan — President

Manjunath Rao — President

Analysts:

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Achal Lohade — JM Financial — Analyst

Sanjay Awatramani — Envision Capital — Analyst

Nitin Khondokor — — Analyst

Ravi Naredi — Naredi Investment — Analyst

Jigar Valia — OHM group — Analyst

Nirmal Bari — Sameeksha Capital Private Limited — Analyst

Amit Chandra — HDFC securities — Analyst

Karan Bhanushali — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q1 FY ’23 Earnings Conference Call of CMS Info System Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] I now hand the conference over to Mr. Dhiral Shah from PhillipCapital. Thank you, and over to you, sir.

Dhiral Shah — Senior Research Analyst

Thank you, Jacob. Good afternoon all. Thank you for joining us on the Q1 FY ’23 post earning conference call of CMS Info System Limited. First of all, heartily congratulations to the management for the great set of Q1 numbers. We sincerely thank the management to allow us to host the call. In the panel today, we have Mr. Rajiv Kaul, Executive Vice Chairman, Whole Time Director and CEO of the company; Mr. Pankaj Khandelwal, President and CFO of the company; Mr. Anush Raghavan, President of Cash Management; and Mr. Manjunath Rao, President of Managed Service. I now invite Mr. Rajiv Kaul to begin the proceeding of the call. Thank you, and over to you, sir.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Thank you Dhiral. Good evening, everybody. I hope you can hear me clearly. Thanks for attending our Q1 call. Before I dive into our performance, I want to share a couple of high-level sectoral macro trends which are quite positive towards cash usage. Usually, Q1 is a softer quarter after a strong Q4 in the financial year as we notice. This year Q1 over Q4, on a quarter-on-quarter basis, the cash in circulation has grown at 2.5% and even when we look at the data on the monthly cash withdrawals and the ATM channel, that’s grown at a 6% quarter-on-quarter levels. So I think that’s very good healthy macro level data I thought I’ll leave for you to digest.

And now, let me just dive into the company. Very happy to say that we’ve been able to continue our momentum over the past year and despite a fairly inflationary environment, we have still had our best and strongest quarter till date on all important metrics of revenue, EBITDA, and PAT. On a year-on-year basis, our revenue has grown by 23% to INR453 crores. Specifically, our annuity revenue stream, which is something which you should pay attention to and track us on, has grown at a 38% year-on-year level and our PAT has grown at 47%, which is a reflection of both the volume increase of our business and activities we do. The operating leverage in the business of our logistics — [Technical Issues].

Operator

We have lost the line for the management. Please hold while we reconnect them. Okay. Ladies and gentlemen, we have the line from management reconnected. Thank you, and over to you, sir.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Okay. Well, I’m sorry for the disconnection of the line. I will just repeat the last line hopefully when I got disconnected. I wanted to explain that the result is, you know, I want to commend our team for very strong execution, focus on very high-quality service to our clients and our operating performance has been robust across all our business lines and product units. So, it’s all-round good quality performance from across the team.

The one thing I wanted to sort of highlight here specifically is our youngest and let’s say the smallest business, which is our remote monitoring business, which we started in COVID, is doing very well. You will remember that we’ve talked about an order book of 25,000 ATMs sites, we have gone live on 15,000 of that. So we’ve executed 60% of the contracts already.

This is a tough one because of supply chain issues of components here is quite a tough challenge to circumvent, but more importantly, we have been able to in a very quick time take our solution capability beyond ATMs and we already had very good proof points in the BFSI sector and we started winning orders with our solutions for bank branches, bank vaults, and even gold loan vaults and we’ve got some very good client names and references where we have started executing work. We got the work and we’re starting to execute that now. I’m going to now request our CFO, Pankaj to take us through the high level financial highlights.

Pankaj Khandelwal — President and Chief Financial Officer

Thank you, Rajiv and good evening everyone. I will take you through the financial performance for the quarter. The revenue from the operation is stood at INR453 crores, which grew by 23% on year-on-year basis. The net profit was INR69 crores, which grew by 47% on year-on-year basis. PAT margin has expanded to 15.2% by 250 basis points between Q1 FY ’21, ’22, and FY ’23.

Our strong performance is on account of increase in volume of the cash activities and increased mix of the tech services. Talking about the segmental results, our both major business segment recorded very strong growth. Cash Management business recorded year-on-year revenue growth of 29% to INR313 crores and EBIT growth of 44% to INR77 crore. Managed Services business recorded a year-on-year revenue growth of 16% to INR146 crores and EBIT growth of 53% to INR30 crores. In our Managed Services business, if we remove the product sale component, the services grew year-on-year by 71%. With this, I now hand over the call to Mr. Anush Raghavan, President, Cash Management for more insight into Cash Management business performance.

Anush Raghavan — President

Thank you, Pankaj and good evening to everybody on this call. First of all, I’m pleased to share that all our three business lines across the cash vertical, namely the ATM Cash Management, Retail Cash and the Currency-in-Transit businesses, have all demonstrated very strong growth.

Overall, from a macro perspective, we continue to see very strong trends across cash usage in India. Across the India ATM network, we have seen a 6% increase over the last quarter in terms of the total currency dispensed. The total currency which is handled by the CMS team grew by 38% year-on-year and has been the highest ever in the history of the company. We continue to invest to expand our reach and presence and as on date we cover more than 16,000 pin codes across India.

On today’s call, let me also take the opportunity to share some more details to you in terms of what you’re doing on the retail business. We are seeing strong traction in sectors which were hitherto affected with the COVID headwinds namely organized retail, travel, hospitality and entertainment has seen some very interesting trends in terms of bounce back post COVID. Here, our cash volumes are up by 22% on a year-on-year basis. Further on the back of this recovery and given the broader opportunity in the retail landscape, we have been investing to create an end-to-end offering which brings together many different parts of the CMS solution set from our product automation to remote monitoring and cash management.

To the retail segment, we offer an automation-based solution which takes care of their reconciliation, cash management, and treasury processes. We have seen very good traction over the last few months and have today built up an order book from customers across fuel outlets, large organized retail players, NBFCs, and airlines. Going forward, we will keep you updated as this business develops. I would now request my colleague Manjunath to share with you an update on the Managed Services business.

Manjunath Rao — President

Oh, thank you, Anush. Good evening — good evening everybody. On the Managed Services business, I’m very pleased to inform you that we have successfully completed execution of our SBI BLA order book ahead of time and are seeing very healthy transaction trends on the same.

Our BLA estate has crossed now 5,500 units as of June ’22. Our remote monitoring SaaS business is growing rapidly with 15,000 ATM sites live and we have further expanded our remote monitoring SaaS solution capability to new areas like branches, vaults and have won contracts with leading private banks and gold loan companies covering close to 1,000 branches.

For our Managed Services business and SaaS business, we have set up a new state-of-the-art Tech Center that is CERT-IN certified and has a three times capacity of the old center. I’m also happy to announce that we have received ISO 9000:2015 quality certificate for application and software development for banks and financial institutions. With this, I will hand this over to Rajiv to do his closing comments.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Okay, so I think I don’t have really much to say. I think our focus remains on executing strongly and continuing our momentum. Before listening and during our earlier calls, we’ve sort of given a guidance saying that our company revenue in FY ’21 was roughly INR1,300 crores. Our goal remains to double that to roughly INR2,500 to INR2,700 crores by FY ’25. We are on track to hit those numbers. We started FY ’22 well. FY ’23 have also started off well and with your good wishes and luck, hopefully we’ll get to that number soon.

In addition, I think this is an important year. It’s in early stage right now, but it’s still in disclosure, just want to share that as part of our efforts to look for newer revenue streams to grow in the country, and this is really keeping an eye on FY ’25 to FY ’30, we are also kick-starting incubating efforts beyond our businesses of Cash Management and Managed Services. These are mostly going to be efforts initially, which will be done ground up within the firm and as we learn and see what sticks and what works, we will then look at how we can scale these businesses.

Very early days, but that’s an area where we have already had shared that we start investing our time, effort — management time, effort, and resources and FY ’23, I think or maybe by the time we have an Analyst Meeting, we will be able to give you a little better update on how these efforts are going to look like. Thank you so much. I’d be happy to take any questions now.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Aasim Bharde from DAM Capital Advisors Limited. Please go ahead, sir.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Yeah, hi everyone, good results and congratulations to CMS teams. I had a couple of questions. First one, on the Cash Management business, can you break out that how much of the growth is through new touch points and how much would be just pure compliance-driven pricing led growth?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

I think that number is — I don’t think it’s relevant to track on a quarterly basis. I think it’s better to more useful to see on a year-on-year basis because there’ll be all — it will move up and down. I think we would have given last year, we had when we did the number we talked about an equal split between volume, which is business points and pricing impact because almost equal split in our numbers at the revenue line and I think in the profit line also, I think between operations leverage. I think we have explained that in the last call. Right now, I think Q1 basis would not be the right way to sort of track that number. We’ll wait for at least six to nine months to give you a sense of the breakup.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Okay, but for FY ’23 as a whole basically we can still assume that 50% of the expected growth should come from unit additions if I got you, correct?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So I think — I’ll tell you what we remember on compliance, what we have indicated, right? Compliance, we have said a couple of things before, which is we expect compliances to finish by FY ’24. At the end of FY ’22, we are roughly 35% of our points were compliant in terms of owning compliance revenues. That should hopefully get to a 60%, 65% by FY ’23 and 100% by FY ’24. We have indicated towards 18% growth rate CAGR over these years in our business, and I think we are on track for that right now. And I would, for the sake of your question, I would think it is why, as to maybe take a 50:50 split between volume and compliance or other pricing initiatives. It’s just not compliance, right? There is inflation price and whatnot. So pricing and volume, I think you should take a 50:50 sort of mix.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Sure, sure, got that. And secondly, just another clarification, I think in your opening remarks, you mentioned about annuity revenue has grown 38% YoY, while Pankaj mentioned that excluding products, MS revenue grew 71%. So the annuity portion that you talked about, that doesn’t include BLA and remote monitoring right?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

No no, so annuity for me, I was talking at a company level, which is both Cash Management and Managed Services, are all of our businesses and I think Pankaj’s reference was specifically to explain to you in the MSBU segment, if you have to think of it.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Okay. Okay. And what would be the pipeline in hand currently on both BLA and Remote Monitoring?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So Remote Monitoring we — I talked about the fact that we had an order book of 25,000 sites, and almost 15,000 is executed. We’ve also got incrementally an order book of another 1,000 sites, which is not ATMs, but that is on the bank branches and vaults, that’s where we are. BLA, we have executed almost 95% of our book, it’s already up and running, yeah.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

And, I mean, in terms of a number, could you be able to share that, what kind of visibility do you have in terms of adding over the next say maybe over the next 24 months from now?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So, if you just go back to what we’ve said before we listed around the time, we had an order book of roughly INR2,000 crores, end of March quarter. Again, I don’t want to make this a quarterly habit because we are not L&T, but end of March quarter we are or full year FY ’22, we had an order book of INR2,200 crores. That order book is growing healthily. And that was your question number one. Second question you asked me what sorry, if you can repeat.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Basically, I just wanted to get a sense that like one thing on the BLA side, for example, one thing would be basically ATM orders in hand and secondly the kind of visibility that you may open to bid for?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Yeah, so I think BLA we are right now — we have a BLA estimated of about 5,500 machines. We are fairly conservative on the BLA business. We I think are looking at adding about 1,000 machines a year provided we can find an estate with the revenue and profit metrics which makes sense to our capital allocation. So that’s where you standout. The business, obviously doesn’t come in bits and pieces like if you are able to win a good quality order, it may be a little more, a little less, but from a directional perspective, we think we’ll be adding about an average of 1,000 BLA machines per year.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Got it, got it. And just, lastly, this incubation that you just talked about at the end of your opening commentary. Any sense that you would want to give, which segments are you really looking for?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So I think again, whatever we were highlighting during our roadshows, I think these are the sectors which is broadly around collections, to create infrastructure on collections mechanisms in India, both from logistics and technology side. That remains an area of interest where we want to start accelerating the work and start investing time and resources. We are also looking at — so this will be more homegrown and inside. I think from an investment perspective, we continue to look for opportunities in B2B payments and in the whole remote monitoring side to see if we can find opportunities to invest in good upcoming technology companies.

Aasim Bharde — DAM Capital Advisors Limited — Analyst

Got it, got it. Thanks a lot and again, congratulations to the team.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Thank you, Aasim.

Operator

Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.

Achal Lohade — JM Financial — Analyst

Yeah, good afternoon. Thank you for the opportunity and congratulations for the great set of numbers. My question is on, so you know, you talked about the CIC growth 2.5% QoQ and 6% growth in ATMs cash resolved or cash handling by ATMs. Would it be possible again this 6% QoQ for the industry how would our cash handling growth would have been?

Anush Raghavan — President

Sure, this is Anush here. So that number, Achal, would be between around 4-5% for us.

Achal Lohade — JM Financial — Analyst

Okay.

Anush Raghavan — President

When you — so compared QonQ, cash handled by CMS would be a 4% to 5% growth.

Achal Lohade — JM Financial — Analyst

Understood, the second question we had, you know, with respect to the margin. Now I see that, you know, given the cost inflation, we have done extremely well. Is it possible to get some more color in terms of what kind of cost inflation have we seen and have we been able to, you know, pass on that cost or it’s the compliance driven pricing which is taking care of these costs?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

I think it’s a mix when you think of it, you know, inflation pressures are both obviously in wages and fuel for a company like us and some raw materials or some input costs. I think for us, the fact that we’ve been able to — and this is a question which came in last quarter as a potential concern and as a team, I think we’ve again dealt with inflation or high inflation environments before. We’re trying our best to manage that. What you see is a mix of the volume of business increasing and therefore, operating leverage impact. Our pricing changes, which are not only limited to compliance, and sort of, you know, even to the earlier question, Aasim’s question, I just want people to know that there is compliance related pricing increase in some part of the estate, but there is also businesses where we are — where annual increases or inflation-linked increases are being either discussed or closed out. So you see that benefit of that and that’s what you’re seeing translate into the P&L in front of you.

Achal Lohade — JM Financial — Analyst

Understood.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

I did fit this in my comments is that, part of the reason of the overall margin increase what you also see here is the fact that a large part of the revenue in Q1 is annuity and services revenue overall, right? The product linked revenue is lesser and that has a margin impact automatically, but we have still grown the overall numbers there.

Achal Lohade — JM Financial — Analyst

Got it. And just one more question I had, is it possible to get some more color in terms of the number of touch points for the Cash Business? What is the growth QoQ or YoY?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

I think that’s — I think we are roughly about 115,000 touch points, but again, I tell people this is not a number you should see every quarter. I think this is more at least a six, 12 month basis is the number to sort of track on because many times there will be some shifts on contracts between banks and therefore a quarterly number is not the best way to keep worrying about this, but 115,000 is roughly the number of points I remember we have.

Achal Lohade — JM Financial — Analyst

Any color you can give on the you know the — the replacement stroke, the new ATM deployment by the industry or by the bank. If you could talk about you know, any developments you could highlight?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So, we — in our May call, when we had finished the full year, we talked about the last year the ATM installed base and India grew by close to 10,000 units. It’s only a couple of months since then. So nothing significant to report at this stage and also the RBI data hasn’t come out for the month of June yet. Again, this is a number which you want to track more on an annual basis than a quarterly basis. To your second question on the replacement cycle or expansion cycle, there are large RFPs either underway in the process of getting bid or closed or RFPs coming out, but we feel that this will get bunched towards the second half of the year.

Achal Lohade — JM Financial — Analyst

Understood. This is very helpful. Thank you.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

For the large public sector banks.

Achal Lohade — JM Financial — Analyst

Understood. Thank you so much, Rajiv. Wish you all the best.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Thank you.

Operator

Thank you. The next question is from the line of Sanjay Awatramani from Envision Capital. Please go ahead.

Sanjay Awatramani — Envision Capital — Analyst

Yeah. Good evening and thank you for giving me this opportunity. Sir, I wanted to know that if you can highlight the unit economics for this brown label ATMs which we installed. [Technical Issues] Hello?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Yeah, we heard you Sanjay, sorry.

Pankaj Khandelwal — President and Chief Financial Officer

Good evening. So, generally, the brown label on ATMs, we have a threshold of our IRR and we generally go for — that is the reason Rajiv has mentioned that we are looking only for 1,000 ATMs, BLA ATMs in a year. So we ensure that our threshold IRR is met for any sort of BLA or capex-driven investment. It is very difficult for us to give you some sense of the unit economics in this call.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

But are you trying to ask what are the costs elements of the business or you are saying what is our targets in this business? I wasn’t very clear on the question, actually.

Sanjay Awatramani — Envision Capital — Analyst

Sir, basically, was asking about the cost per se itself, because as you mentioned that yearly you will be moving ahead with roughly in the range of 1,000 installation of ATMs or replacement of ATMs. So I was asking perspective on the cost basis.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Yeah, so I think, you know, our estimate is that basis of 5,000, 5,500 machines we’ve been running now. Our estimate is that basis the investment required for a brown label ATM. I think we are — our IRR are in the high teens number and that’s post-tax IRR. That’s what we target in an ATM. Again, in prior calls, we have explained our strategy. We think in a year, in any given year between 10,000 to 20,000 ATMs could get contracted out for BLA. We are focused on only the high quality, high yield, high transacting ATMs, which are for the largest banks for the country. Our current estate of 5,500 ATMs is almost got — 65% to 70% of that is with SBI.

Sanjay Awatramani — Envision Capital — Analyst

Okay, this is very helpful. So thank you. Thank you so much for this and good luck for FY ’23 [Phonetic].

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Thank you.

Operator

Thank you. The next question is from the line of Nitin Khondokor [Phonetic], an individual investor. Please go ahead.

Nitin Khondokor — — Analyst

Hi, Rajiv. Good afternoon.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Hi, Nitin [Phonetic].

Nitin Khondokor — — Analyst

My first question is about the industry size relative to its counterpart in the Western world. So when we look at the U.S., the top four companies account for revenue of, I guess about one $18 billion annually, which includes some revenue from Europe as well. I believe the size of the industry in India is about $2 billion. So in the context of India’s GDP related to the GDP of the U.S., I believe the Indian industry could outpace its U.S. counterpart in the next few years. What is your estimate of the industry size in India and what would be our strategy to outperform the industry in India going ahead?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So, Nitin our estimate on you know, when you look at the market data for India, let me talk about that before we think global, are roughly the TAM for this market in 2021 was about INR8,000 crores, INR8,500 crores, right and now when I talk about that, that includes everything from automation to managed services, brown label deployments, white label market, cash management, and also remote monitoring. The industry estimate on this is as this TAM is likely to become a INR20,000 crores, INR21,000 crore market by FY ’27.

So that, I won’t say billions of dollars given how devaluation is happening, I prefer to talk rupees because that’s what we are working in. Now, that’s the size. India is a reasonably cost effective or value-focused market. So I think we — and also the because of volume and we are the world’s third or fourth largest ATM market in the world. So I think there is pretty healthy competition and prices are pretty aggressive given the market conditions. That’s why I could give you some sense to help you understand the market or the market direction possibly based on industry estimates. As a company, for us, based on the current lines of business we have, we have set out the goal to double our business in four years from FY ’21 to ’25.

Nitin Khondokor — — Analyst

Okay, so what would be your specific strategies, if you could throw some color on that please?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So we were product predominantly a cash management company till FY ’15 post which we started expanding into all adjacencies where we are selling to bank starting from automation solutions, software for the ATM networks, remote monitoring services at ATM sites and bank branches, the brown label deployments. Our approach here is that we were a service provider till FY ’15 and we want to become more of a solutions company offering end-to-end solutions, which encompass both logistics and technology solutions, help serve the banks because they’ve got a very distributed network in the country and they don’t find people like CMS who can handle this for them and move up the value chain by giving them a mix of services both on logistics as well as on the technology side.

So, our quality of service, our network, our reach, our integrated capabilities are already resulting us in delivering the best quality services to banks. Now, this is a very difficult measure to measure, but we actually find that we’ve had some of our customers, in fact, from internationally and large — large — from US and all saying why don’t we come and start services here because we don’t find companies with your capabilities or quality of service. So, that’s the approach.

Keep high quality services, have a fantastic network to offer this so that customers come to you before they go to somebody else. Use the economies of scale and operating leverage to be able to make a higher margin than anybody else and also run very tight operations with high automation to deliver a lowest unit cost and therefore maintain a margin profile. I’m sorry, it’s a very large presentation, but I’m trying to give you a summary answer.

Nitin Khondokor — — Analyst

Thanks, Rajiv. That’s helpful. Secondly, based on the consolidated data, EBITDA margin in Q1 is the highest in the last seven quarters at least, how would you comment on the variable versus fixed components of the opex? A small part of the EBITDA expansion is attributable to your company’s vehicle maintenance costs, which after peaking at 10.3% of revenue in Q2 FY ’22 has tapered off to 9.3% and 8.6% in the last few quarters. This is in spite of the fact that the prices of fuel have been high since March itself after the Ukraine war broke out. So how would you comment on this particular line item and on the overall margin profile? Thank you.

Anush Raghavan — President

Sure, Nitin, let me take that, Anush here. I think over the last couple of calls and even during the roadshows and then some of our presentations, youyou would see that we’ve sort of invested a fair bit of effort in bringing the technology that we deploy to manage our routes and I am speaking on the cash business because that is where lot of fixed cost and variable cost get associated. We’ve just been able to do a far better quality of throughput in terms of the route management, the predictive analysis around productivity and just getting better control of that fixed cost.

And in COVID, we were sort of able to really reap the benefits of being able to deploy the technology and get automation happening. There is also lot of automation that has been implemented and various other things which are in process of implementation for some of the management processes be it things like ATM reporting, cash processing for instance. So, I think that combined with the synergistic benefits of certain scale and when we grow, it helps us to sort of achieve to some extent a certain non-linearity of our margin profile.

With respect to the observation in terms of the margins, I must tell you, yes, first quarter has been the best and like you rightly said it comes in the perspective of the inflationary headwinds being the most severe. We have, in fact, incurred expenses in first quarter of also wage review across the board for the cash business. So that’s sort of already built in there. With respect to the maintenance expenses, I think again, over the last year and even this year deployed a significant capital to do a refresh of our fleet partly driven by compliance and partly driven by the fact that new vehicles help us achieve better efficiency and to some extent it has also helped us reduce the maintenance cost as well as reduce little bit of our hiring expenses. So that’s probably what you are seeing there.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

I think net-net, it is a lot to do. Whatever improvements you see takes a lot of effort on the ground by our field teams to monitor and track. A lot of our internal automation, which we do not sell to anyone else, is really about running and improving how tightly we run our operations and to prevent any leakages. I think some of that benefit has been part of the reason why our margin profile is different compared to our competitors and how we try to maintain them and run the company.

Nitin Khondokor — — Analyst

All right, thank you. That’s from my side.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Thank you.

Operator

[Operator Instructions] The next question is from the line of Ravi Naredi from Naredi Investment. Please go ahead.

Ravi Naredi — Naredi Investment — Analyst

Thank you management to giving the best so far result in quarter one. Sir, how much cash available in system by RBI and how much higher than last year?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

I think — just give me a moment — as of May or June the total currency in circulation by the RBI was INR32 lakh crores, which compared to March ending I think was INR31 lakh crores. So about an incremental INR1 lakh crore or INR1 trillion in circulation in this quarter.

Ravi Naredi — Naredi Investment — Analyst

Okay, and how we reduce the risk? Everything insured or anything nuisance happen and our cash managed within quarter one?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So I think the nature of business is the fact that there is risk and that is why we work with the — banks work with companies like us to manage the risk well. It is part and parcel of our cost. So I think from a revenue perspective, almost 4% to 6% of the revenue is what goes towards our risk cost, which could be theft, robbery, insurance, pilferages, whatnot. So, I think keeping that tight and running that is — we have a large team. We have almost 150 to 200 people across auditors and security advisors who are working across the country to keep these incidents under control.

Ravi Naredi — Naredi Investment — Analyst

Right, right. And this elevated net profit margin 15.2% in quarter one will sustained in current year or maybe higher?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

From our side, what we guide towards is the fact that we have ambitious revenue growth goals which CAGR to an average of 18% CAGR we want to achieve. I think we should be able to maintain margins from, as I said, from FY ’21 to FY ’25 basis. Very difficult to comment quarter-by-quarter exactly what will happen to margins, but we have done well. I think last year we finished the year with 14.6% margins for the full-year and PAT margins expanded from Q4 to Q1. We will try our best to maintain our profit levels.

Ravi Naredi — Naredi Investment — Analyst

Okay, and this 18% growth we are hoping for next few years?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So, FY ’21, we were a INR1,300 crore company roughly. Our target for FY ’25 is between INR2,500 to INR2,700 crores. [Foreign Speech]. So, that becomes a double, two times in four years, which is roughly 18% CAGR. FY ’22, we had a 22% growth and I think from a guidance perspective, I think that 18% CAGR from this base is what we would like to guide you towards.

Ravi Naredi — Naredi Investment — Analyst

Okay, okay, thank you very much. And last, capex plan for current financial year.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Pankaj?

Pankaj Khandelwal — President and Chief Financial Officer

So, in the last call we have given the sense that we are expecting INR225 crore of capex. So for the execution of orders — whatever orders in hand and we are in this quarter also in line with the investing according in that line.

Ravi Naredi — Naredi Investment — Analyst

Okay, thank you very much.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Thank you.

Operator

Thank you. The next question is from the line of Jigar Valia from OHM group. Please, go ahead.

Jigar Valia — OHM group — Analyst

Yeah, thanks for this opportunity. Would want to understand with regards to the employee cost, and generally, all the 20,000 plus, including the drivers, et cetera for the 4,000 vans. These would all be onboard or do we have contract staff as well. And would want to understand typically on the attrition and a normal staff inflation that you kind of generally see year-on-year.

Anush Raghavan — President

So, Anush here. So, with respect to your first question typically we outsource the roles of drivers and security services. We have generally very few drivers and no security services on our payroll. We typically work through our partners or vendors for these services. So, to those extent, it would be on contractual staffing. Rest of the team which handles the cash operations including the back office and the field would be in some cases on our payroll or in some cases we work with various staffing agencies.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

You had a second question on attrition and inflation. So, yes I think if you sort of look at over the last few quarters, the attritionary trends have been a headwind for us as it for the industry and overall India. We sort of being trying to look at the overall numbers I think our attrition which used to be in the range of low-20%s is right now trending towards high-20 percentages. We have a lot of our HR team and people functions working with different skilled development agencies to try and see how do we counter some of these attritionary pressures and make sure. The focus always is to make sure that we continue to maintain high levels of serviceability, high up times and high quality of operations and sort of don’t want to get that affected and so far, we are keeping a high threshold on that. You had a question I think on the inflation aspect. Could you just detail that please?

Jigar Valia — OHM group — Analyst

Yes, I mean, generally with this attrition or normally for the type of staff that you have typically what is the inflation that you kind of I mean in the past maybe going ahead these would be double-digit inflation?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

No, not double-digit. I think it is linked to multiple things. It is linked to certain government wages and how they get revised. It’s fairly — I don’t think there is a simplistic answer to how it gets done, but I think you should assume typically it is in the range of about 5% to 7% inflation.

Jigar Valia — OHM group — Analyst

And including the contract staff what would be the total number of labor involved in the business? Overall employees involved in the business.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

We have team members, roughly 23,000 team members.

Jigar Valia — OHM group — Analyst

So this is including the outsourced?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

This is all including, all employee associates, vendor partners.

Jigar Valia — OHM group — Analyst

All inclusive. Okay, okay. Got it. Thank you. Thanks.

Operator

[Operator Instructions] The next question is from the line of Nirmal Bari from Sameeksha Capital Private Limited. Please go ahead.

Nirmal Bari — Sameeksha Capital Private Limited — Analyst

Yeah, so thanks for the opportunity and congrats on the very good set of numbers. My call dropped in between. So probably my question might be repeated, but you said that we have about 35% compliance at present and it would move to 65% by the end of the year. So if you can break it up between what is the level of network compliance and what is the level of compliance on cassette swap at present and where do we expect it by end of year?

Anush Raghavan — President

Sure, so I think like Rajiv was mentioning on the call, we sort of hold track. I think it’s more appropriate to track this percentage or development on an annual basis than breaking it up down into quarter. [Indecipherable] I think broadly when we say we would like to move from 35% as of last year end to 65%, it will sort of happen in a smooth manner. There is not really too much of lumpiness to this partly because there is a certain time of execution, buying the vehicle, getting the infrastructure ready, deploying them on the ground. So, it should sort of fall into that broad trend line.

Again, when we refer to this compliance, it is still more to do with the base RBI and MHA compliance. On the cassette swap, I think that is the project which generally is lagging behind the overall compliance given the fact that the infrastructure requirement and the upgrades needed by the banks in terms of some of the earlier procurement has a certain lead time. The RBI has given a mandate to all the banks that they should be completing this project by March 2023. So, many of these banks are in discussion with us and we think that implementation of this compliance should accelerate through this year.

Nirmal Bari — Sameeksha Capital Private Limited — Analyst

And would it be fair to assume that a significant proportion of price increase that we are looking at from the compliance angle that could happen when this cassette swap compliance comes in?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

No, I think, you know, compliance is very complex. I do not think you can break it down to these numbers on a simple basis. Compliance has got network upgradation cost which is your vaults, which is your vans, it is your security, it is also training. So, I think that we indicated in May that we were at a 50% compliance level by May as a company and we are trying to get to 70%, 80% compliance by the end of this year.

From a cassette swap perspective, again, if you take the specific of what would a cash management company earn on a cassette swap basis, forget the profit just as a revenue, I would think that on a blended basis everything you do for the ATM from cash management, compliance, cassette swap I think it will be roughly at 10% of the total revenue. From an overall compliance level, it maybe a 20%, 25% of the revenue.

Now the banks need to invest, the banks need to source the cassette for the installed base of ATMs. So, I think that is where there are choke points or supply side constraints because India, as I said, is the world’s third largest ATM market, you can’t overnight go and start buying so many cassettes landing up in the country. So, that’s a area which is only area which is going slow. Otherwise I think both from the regulator perspective and CMS as a largest government [Phonetic] sector, I think we are moving along quite rapidly.

Nirmal Bari — Sameeksha Capital Private Limited — Analyst

Okay. My second question is, you said at the beginning of the call that it’s important to look at the annuity revenue. So of the total revenue that we had, how do we segregate annuity revenue from the rest of the one-time product sales related revenue, what was it for the current quarter and the previous year?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Sure, at a management level, we have three levels of revenue. We have product sales, we have annuity, we also have something we call recurring, but for the sake of simplicity and not confusing people, let’s us assume annuity is both annuity plus recurring. In FY ’22, of our overall revenue — our annuity revenue would have been 92% of our revenues and that seasonally right now in Q1 is at 97%, but that obviously product sales is and automation, these are not seasonal, but they can get bunched up into certain quarters depending on order cycle, supply cycle, inflation cycles.

Nirmal Bari — Sameeksha Capital Private Limited — Analyst

And second question, sorry, the other question was on our Managed Services group. So now that we have executed almost 95% of the order book there, for the current year, would the revenues kind of stagnate at the current quarterly level or if there would be growth, what would be the triggers for growth in that?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

That’s a good question, but let me just use your last question to help explain a little better of where we are and where we are coming from for the sake of knowledge for you and your other colleagues here. If I have to think back five to six years ago the product or the one-time revenue type business in our revenue may have been close to a 30%, 35% of our revenue. That is now down to a single-digit number. Now, again, we have nothing against that business, it just depends upon the volume of business and the margin profile. So, I think the idea is to make sure that we have more smoother annuity type revenue which is more predictable both from revenue and also from planning your network and cost and how you plan for growth.

Second question on the order book before I go to the order book, I will again go back and say it, repeat it one more time, that our goal is on a four-year basis to achieve an 18% sort of CAGR revenue. If you take an 18% CAGR revenue as a goal for this year, we have done X percentage of that in the first quarter and then therefore it means we hope to grow at a particular rate roughly 4% every quarter-on-quarter to get to a number for our internal target for this year. So, probably, obviously we are looking at that growth on a QoQ basis and therefore 18% on a YoY basis. Q1 is very solid. We have, as I was telling other people in the day, we still have nine months in the year to finish.

From an order book perspective, we have from a current order book of INR2,500 crores almost INR1,900 crores is executed. Now to your specific short-term question, between last year to this year or this quarter, I would say that you would see healthy growth because we started or executed the order book last year. We got some revenue recognition of that last year. We will get a much larger one this year.

Even next year we should see this grow very healthily, but this is at a point in time there are RFPs,which are expected to come whether we win or lose we don’t know, but depending on our win rate, I think we should be able to — our target again is to be able to keep growing our business at a 18% CAGR in the foreseeable future and that is how we would do. Last three to four months, we have won RFPs worth INR250 crores already.

Nirmal Bari — Sameeksha Capital Private Limited — Analyst

Thank you, that’s was helpful. Thank you, I’ll fall back in the queue.

Operator

Thank you. The next question is from the line of Amit Chandra from HDFC Securities. Please go ahead.

Amit Chandra — HDFC securities — Analyst

Thanks for the opportunity. So, my question is more on the from the competition side so maybe if you can throw some light on what kind of competition we are seeing maybe in the Automation business or in the Managed Services or in the Cash Management particularly from companies like Hitachi, Euronet or AGS or SIS, so is there any increased competition that you are seeing in the market?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So, you know, if you look at the overall industry you have given some of the names and these are leaders in their own rights in their specific industries. 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. So, we would maybe end up competing in some business lines, but we would also be a partner to many of these companies for some of the businesses they do.

Is the competition increasing? I think competition in India for any business and sector is always very fierce. I don’t think there is any dramatically new or lesser. However, if I think of a structurally basis what we have seen post demonetization and then GST and then COVID and now a higher interest rate regime, there has been a share shift to stronger better quality players. There has also been consolidation in the sector between whether it is the MSP space or the cash management space, there is some consolidation going there.

We have seen the share of the top two players increase steadily over the last couple of years, how that trend bodes in the future, we don’t know, but I think that is a global trend also because when you think of cash management, you need large integrated companies which are able to cut across different product lines and are able to service the length and breadth of your country. That’s where the route dynamics and operating leverage and risk management comes into play. Do we see any new competitors right now? No, but companies have come and gone. I think CMS remains one of the largest and the strongest companies for the last decade in the sector.

Amit Chandra — HDFC securities — Analyst

So why I asked this question is because some of the competition especially in the cash management side have actually become your clients because most of the Hitachi or FIS, they are not doing cash management and they are mostly outsourcing this and they are focusing more into Managed Services. So is that a trigger in terms of scaling up the Cash Management business?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

I think we, you know, we were the largest and the best cash management company in 2015, I think after that, that was not our aspiration anymore. Our goal was to simply say how do we increase our TAM and again when we think of TAM, our goal is to offer a high-quality service, earn fair margins and business scale. That is what we have done from our automation side where we are the second largest OEM in the country today. When you think of software, we are the largest. When you think of remote monitoring, by the end of this year, we will be the largest in the country.

The only area where I have been very clear to underline this in bold many times is like the brown label business which is very capital intensive is something where we do not aspire to be a number one. That’s why we do only 5,000 ATMs. India may have 90,000 brown label ATMs, we do only 5,000 of that and we may be go to 6,000, 7,000, 8,000, 9,000 over the next three to four years. We don’t aspire to do 30,000, 40,000, 50s,000 ATMs here. So, from a perspective of, I think at the end of the day, in a market like India having more integrated offerings across the business is what makes sense because that is where we are able to deliver the most value to our customers, but we have also seen companies exist as specialist companies.

They will only do one product line in cash management and they have built scale. Now at what point will they sell out or sell, I don’t know, who knows, but our approach has been to keep growing our TAM and line of services again also linked to what our customers want from us, what a Hitachi or a Euronet or an SBI or a Bank of Baroda wants from us is the way we are also trying to scale our business.

Amit Chandra — HDFC securities — Analyst

Okay and sir in terms of more from macro perspective with the surge of UPI and with the push of this digital transaction, don’t you see that structurally the number of transactions for ATM is coming down and with the increased compliance cost, don’t you think there is a structural threat to the margins in this business especially on the BLA side?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

I think this is an assumption. We don’t know. Is cash growing lesser than UPI? Absolutely. Is UPI taking over business from debit cards and credit cards and different payment wallets? Of course. However, this is not data we’ve updated recently. I think we’ll come out with this in the next couple of months. When we look at the CMS Cash Index trends, there is healthy growth of cash in our network across the country. I can’t compare ourselves to UPI when I look at cash and

What CMS handles in cash management which is roughly 68% to 70% of our revenue because we have other business which is not linked to that.

We do see healthy trend lines in semi-urban and rural where the growth levels are higher than metro and maybe urban and I think when I talk to industry players, I talk to bank Chairmans’, I don’t think they see that usage pattern in the majority of India changing dramatically over the short-term. It may change over the next seven to 10 years and we don’t know. Our goal as a team remains what — I remember when the management team came to CMS in 2009, we were predominantly an IT infrastructure player from where we morphed into a cash management company and now we have gone into technology solutions and services. Our idea is to keep offering solutions to BFSI and retail and grow along with them.

In fact, we are seeing a very good pickup, as Anush talked about, very good usage or increase in cash volumes and retail, specific sectors I think he highlighted in his talk and how do we bring solutions to them. There will be an increased outsourcing from banks because banks are still not outsourcing a large part of their work. So, from an eight to 10-year perspective, I think there is a fairly decent macro for reasonable growth for what we do today and as a team, I think we have proven that we have been very agile in launching new services which is helping us grow the way we are.

Amit Chandra — HDFC securities — Analyst

And sir, my last question is on the cash management business. So in terms of the contracts that we have with the banks, so is it a long-term contract or it is being revised yearly and is it based on like per ATM unit economic basis, maybe you are charging per ATM per month basis or is it based on the number of refills. So how is the basic business structure there? I think in the interest of time because we are at five o’clock, I think this is disclosed in lot of detail in our RHP and DRHP documents because this will take us 10 minutes to explain to you across our business lines, but the contracts for Managed Services clearly run into multi-year recurring contracts. In the Cash Management side, we look at contracts more on annual or two-year, three-year basis because we want to have the flexibility to look at prices depending on inflation because the impact of both wages and fuel both upwards and downwards is significant in that business. Therefore, we like to have a flexibility to look at pricing on an annual basis. Having said that, our attrition of clients is almost negligible at zero and looking here a base of I know when we came here we were doing 4,000 or 5,000 ATMs, today we do more than 70,000 ATMs. I am just saying ATM, but retail and cash vans, all those metrics will also show a very good healthy growth. Okay, sir. I will take it offline with you. Thank you. Thanks for the answers.

Operator

Thank you. The next question is from the line of Karan Bhanushali [Phonetic], an individual investor, please go ahead.

Karan Bhanushali — — Analyst

Congratulations on a good set of numbers. Your margins have improved year-on-year I wanted to ask if these can improve further and what will [Indecipherable].

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Well, thank you. I think from a margin perspective, we are quite happy with the way our margins have been tracking last year current quarter. As I have guided our investors over preceding calls, we as a team think the opportunity after the whole COVID era and the consolidation in India before that points us to a larger share of revenues in the broader ecosystem we play in. We are quite focused on making sure that we increase our revenue market share in the industry.

How we manage margins and — as a management team, managing revenue growth, profitability, profit margins, market share is something which we have to be agile at every quarter and I think we will have to think of what we need to do from a longer-term of the business — interest of the business rather than worry about short-term measures. As of now, yes, they should, but it is not something which we would have any visibility or we could give you some guidance on right now. The market is very dynamic.

Karan Bhanushali — — Analyst

Okay, can you also talk about your inorganic growth plan?

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

So, our inorganic growth proof point in the last seven, eight years is that we try to do smaller acquisitions mostly to acquire new capability or enter into new segments. If there is something strategic in our core businesses, we are open to acquisitions. We have done one or two of them, but however they are usually a big gap in the value of what we think we would like to pay and what a seller may want especially from a company like us because when they start talking to us, they start looking at our numbers, our margins and start extrapolating that.

So, it is not been an easy dynamic for us. We also don’t think that we need to go and grab companies and buy them because I think we are able to grow our business organically and we rather invest our capital behind businesses which we have far more orders or contracts where we have far more clarity control and recurring nature. I think that is a business opportunity we are seeing and that is the order book we have built that is where we are deploying our capital. Having said that, if something strategic comes up at the right price and we can maintain our capital allocation, we are obviously looking at it. Our current energies are going into non cash management, non managed services, into more asset light technology-oriented business where we can use either minority or majority investments to launch or try out new businesses.

Karan Bhanushali — — Analyst

Okay, okay. Thank you so much for answering, sir.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Thank you.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Rajiv Kaul — Executive Vice Chairman, Chief Executive Officer and Whole Time Director

Sorry, I think I had already closed the comments initially, but just to summarize, thank you so much for your time and patience. Thank you for your journey with us as investors. We feel the environment is exciting. At the same time, there are challenges as we explained. Our focus is head down, focus on strong execution, continue to improve quality of service for our clients so that we become — we have a very good moat on our business and use FY ’23 to start piloting new business ideas which can become a bedrock for growth from FY ’25 onwards. Thank you and have a good evening.

Operator

[Operator Closing Remarks]