CMS Info Systems: Focus on multi-pronged growth strategy

26 May 2023 , 11:27 AM

Recommendation: Buy

Target Price: Rs. 420

While it reiterated its FY25 revenue target of Rs. 25-27 billion (achievable in IIFL’s view), it also shared FY27 revenue aspiration of Rs. 34-38 billion (which may require M&A). Key growth drivers would be ATM rollouts, higher outsourcing by banks and growth in organized retail. Out of new businesses, AIoT based remote monitoring holds the most promise and CMS has achieved nearly Rs. 1 billion annualized revenue in just 2 years after foray. Analysts at IIFL Capital Services have marginally tweaked their estimates and project 20% EPS CAGR over FY23-25. The stock trades at 13x 1-year forward PE.

Cash Management can grow in mid-teens, even in steady state

CMS outlined a number of data points to suggest that cash usage has been buoyant, despite proliferation of UPI. One investor concern has been that revenue from Cash Management could taper off once regulatory compliance-driven price increase tailwinds abate in the next 2-3 years. Even in steady state, rising ATM count, higher outsourcing by banks (currently ~60%) and normal price increases can drive 13-15% growth, CMS said. Retail Cash Management revenue would see uplift from rising penetration of organized retail.

MS business should grow faster; AIoT remote monitoring promising

MS business should benefit from 80k+ ATM refresh cycle of PSU banks, 20k+ new ATMs led by Private banks and higher outsourcing. CMS reiterated that it would tread cautiously in the Brown Label ATM (BLA) space. Within MS, AIoT remote monitoring holds the most promise with <40% penetration in ATMs and bank branches. Eventually, this can be expanded to other verticals such as Insurance, Retail and NBFC.

Aspiring to Rs. 34-38 billion revenue by FY27

CMS’ FY25 revenue target and FY27 revenue aspiration — both entail ~17% CAGR from FY23 level. While the former is achievable, the latter may require M&A especially as Cash Management revenue could decelerate. CMS’ Rs. 4.5 billion cash could be handy for pursuing M&A opportunities. While CMS sports industry-leading EBITDA margin, management did call out high competitive intensity. Capex would be in the range of Rs. 1.5 billion-Rs. 1.75 billion p.a.