Q2FY24 Review: CMS Info Systems: Healthy medium-term outlook, despite Q2 miss

27 Oct 2023 , 12:52 PM

CMS’ 15% YoY revenue growth was below estimates, due to rural weakness and a delayed start to the festive season. PAT growth at 16% also trailed estimates, on account of higher ESOP charges. After removing ESOP costs, PAT grew 25%. On the earnings call, management reiterated the FY25 revenue target of Rs25-27bn. While retail cash management (RCM) would be the key driver for the Cash Management segment, order book for Managed Services (MS) segment remains healthy. The company did not rule out a potential increase in competitive intensity across segments, though it expects superior execution to hold it in good stead. Analysts of IIFL Capital Services cut EPS estimates by 4-5%; their Dec’24 DCF-based TP comes down to Rs436 from Rs449. The stock trades at 14x 1YF PER — attractive, considering 16% FY23-26 EPS Cagr. Maintain BUY. 

Lower revenue, higher ESOP costs drove Q2 miss: 

Cash Management revenue growth at 11% YoY, was lower than in recent quarters, and despite a 12% growth in business points served. MS revenue growth remained healthy. While risk cost as % of the revenue fell from 6.8% in H1FY23 to 6.1% in H1FY24, higher ESOP costs weighed on reported Ebitda growth (+8.5% YoY). 

Healthy management commentary: 

Key takeaways from the earnings call: 1) Currency throughput on CMS’ network rose 6% YoY to Rs3.3trn (with metros faring better at 10%). 2) While the Cash Logistics segment revenue growth was driven by ATM cash management predominantly in the last two to three years, RCM should step up. 3) Rs5bn order inflow in Q2 in the MS segment largely pertains to asset-light businesses, and the revenue from this should accrue over three to five years. 4) Risk cost came down to 4.1% of the overall revenue in H1FY24 vs 5.1% in FY23. 5) The increase in receivables is due to seasonality, delay in payment by customers because of higher interest rate, and payment cycle yet to settle down in some of the recently won PSU bank orders. 

Analysts of IIFL Capital Services cut EPS by 4-5%; new TP Rs436: 

Analysts of IIFL Capital Services cut EPS estimates by 4-5%, mainly due to higher ESOP costs. After rolling forward to Dec’24, their new TP is Rs436. Valuations remain attractive, considering healthy earnings outlook, strong return ratios and an asset-light business model with ~Rs4.7bn net cash.