Q1FY24 Review: CMS Info Systems: Growth to resume at normal clip after Q1 blip

25 Jul 2023 , 12:48 PM

While CMS’ 13% YoY revenue growth was below estimates due to transient factors, PAT grew by a healthy 22% on better mix. On the earnings call, management stated that cash usage growth has been healthy including in metros despite the proliferation of UPI. Higher outsourcing by banks, improved progress on cassette swap implementation and rising penetration of organised retail are positives for the cash management business. The company expects remote monitoring and software business to account for 8-10% of overall revenue by FY27. Despite the Q1 revenue blip, analysts of IIFL Capital Services maintain estimates and expect CMS to achieve its Rs25-27bn revenue guidance for FY25. The stock trades at an attractive 15x 1YF PE, considering 20% EPS Cagr over FY23-25, debt-free balance sheet and healthy return ratios. Analysts of IIFL Capital Services raise their DCF-based TP from Rs419 to Rs449 due to lower WACC and rolling forward to Sep-24. Maintain BUY. 

Q1 saw some revenue slowdown on transient factors: 

Cash management revenue growth at 12% YoY was lower than in recent quarters. There was some reduction in ATM activity due to unseasonal rains (which impacted rural consumption) and the withdrawal of Rs2000 notes. These weighed on revenue growth but Ebitda margin surprised positively on better mix.

Medium-term growth drivers intact: 

Key takeaways from earnings call: 1) Currency throughput on CMS’ network rose 6% YoY to an all-time high of Rs3.3trn (with metros faring better at 10%). 2) Implementation of cassette swap regulation has witnessed an acceleration and CMS expects 1/3rd to be completed by end-FY24 (this will not only result in improved realisation but also reduce risk cost). 3) Managed Services (MS) order book remains healthy. 4) While CMS does not rule out an increase in competitive intensity, it feels that the market share loss risk is more for smaller/unorganised players as larger players like CMS have a moat due to scale advantage.

Maintain EPS; new Rs449: 

Analysts of IIFL Capital Services attribute the marginal Q1 miss to quarterly fluctuations and maintain analysts of IIFL Capital Services projections. They expect CMS to continue its healthy growth momentum thanks to solid execution and maintain their ~20% EPS Cagr. Analysts of IIFL Capital Services prune WACC by 30bps, inline with the fall in 10-year G-sec yields. Their TP of Rs449 implies a 15x 1YF PE on 2YF EPS.