Weekly Tactical Pick: Why this cash manager counts

CMS Info Systems has seen a correction of 7 percent in the last one month.

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

The tactical pick for this week is CMS Info Systems (CMP: Rs 367.25; Market Capitalisation: Rs 5,747 crore; Nifty 50: 19,727), which has seen a correction of 7 percent in the last one month.

CMS's first-quarter results were mixed as revenue growth was a tad slower than Street expectations, while a record EBITDA (earnings before interest, tax, depreciation, and amortisation) margin of 28.9 percent was a positive surprise. Group revenue growth of 2 percent was led by a 7.4 percent sequential rise in managed services revenue that offset the flat performance of the cash management business. The company's AIoT (Artificial Intelligence of Things) remote monitoring business continues to see momentum, now generating a Rs 100 crore annual revenue run rate. Further, the company won a Rs 150 crore order that took the order book to Rs 3,300 crore.

The cash management business, despite a slow show in Q1, is on a strong footing in the world's third-largest ATM market that is still evolving. By June end, total touch points for the business grew to 1.26 lakhs, up 10 percent year on year (YoY), while the margin stood at an all-time high of 26.8 percent.

The cash logistics business's main driver continues to be the currency in circulation (CIC), which, contrary to the perception, has gone up from 8.7 percent of GDP in FY17 to 12.7 percent now. This translates into a requirement for banks to expand their ATM & branch networks in semi-urban and rural areas, thereby necessitating new ATMs and supporting services. Even as digital payment penetration rises, the absolute quantum of cash circulation will continue to remain large, cementing the long-term presence of service providers such as CMS Info Systems.

Further, around 1 lakh ATMs are set to be outsourced to private players along with growth in organised retail, which should drive the cash management revenue growth.

On the other hand, the managed services business has been growing rapidly with revenue growing by 33 percent in the last four years, albeit at a lower margin of 17-20 percent which is lower than the group margin. The company's recent foray into ATM & cash recycler machine manufacturing extends its presence across the value chain and makes it the only integrated player in the space with the capability to offer end-to-end solutions to customers.

We estimate revenue and and EPS CAGRs over the next two years to be 17 percent and 21 percent respectively, implying that the company will achieve a revenue of Rs 2500-2700 crore by FY25.

With a strong return profile, good Free cash flow generation and double-digit EPS growth, the stock is trading at FY13.6 times, which in our view is inexpensive. The recent correction makes CMS Info a good tactical investment opportunity.