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CMS Info Systems IPO - All You Need to Know

Dec 21, 2021 4:01 PM 5 min read

CMS Info Systems (hereinafter referred to as "CMS") kicked off the three-day subscription process for its upcoming IPO today. 

The company, a prominent cash management player and automation solutions provider, is aiming for a December 31st listing on both the BSE as well as NSE bourses.

Here's a deep dive into the issue. 


IPO Stats

  • Issue Size: ₹1,100cr ($145.1m) (Offer for Sale entirely)
  • Issue Price: ₹205-216 ($2.7) per equity share
  • Face Value: ₹10 ($0.13) 
  • Market Lot: 69
  • Issue Breakup: QIBs (50%), NIIs (15%), Retail Investors (35%)

CMS will not receive any proceeds from the IPO as it is entirely an offer for sale by the promoter of the company, Sion Investment Holdings, an affiliate of Baring Private Equity Asia. Post-issue promoter share will come down to 65.59% from 100% currently.

The company also mopped up ₹330cr ($43.5m) from 12 anchor investors in the run up to its subscription day. The Grey Market Premium (GMP) today is around ₹30 ($0.4). As of the day's end, the issue has been subscribed 0.40 times. 


Company Profile

CMS is engaged in the business of installing, maintaining and managing the assets and technological solutions on an end-to-end outsourced basis for banks, financial institutions, organised retail and e-commerce companies in India.  

It essentially manages the entire flow and management of money for the 133,000 business points that it serves everyday, starting from when the RBI initially deposits cash in the bank's currency chests to when the cash is deposited back in the banks after passing through various stages of the cash cycle.

The business is primarily divided into three segments: 

  1. Cash management services: End-to-end ATM replenishment services, cash pick-up and delivery, network cash management and verification services. This accounts for about 69% of the business. 
  2. Managed services: Banking automation product sales, remote monitoring for ATMs, maintenance etc. This accounts for about 28% of the business. 
  3. Others: Financial cards issuance for banks and card personalisation services. This accounts for about 3% of the business. 

As of March 31st 2021, CMS is one of the world's largest ATM cash management companies (based on the number of ATMs and retail pick-up points). In FY21, the total value of currency passing through all of its managed ATMs and retail cash management businesses was ₹9.2Lcr ($121.3bn). 

The company claims to have a market share of 24.7% based on the total number of ATMs it services and a market share of 41.1% based on the total number of outsourced ATMs. It has a fleet of 3,965 cash vans and 238 branches and offices across all Indian states and Union Territories.


Company Financials

The company's performance is directly dependent upon the banking sector in the country. Any adverse development in the sector could have an effect on its business, operations, cash flows and financial performance. 

Although CMS has a pan-India network and long-standing relationships with leading banks, it derives a significant portion of its revenues from a limited quorum of customers. If this quorum reduces, the company's revenues could decline too. 

However, the company's order book remains promising at ₹2,000cr ($263.8m) and is expected to grow stronger as banks are looking to outsource more and more in the race to turn more efficient in their cost structures. Between FY19-21, CMS posted a revenue and PAT growth of 7% and 32% CAGR respectively which looks positive in the long term and perhaps highlights the benefits of economies of scale percolating to the bottom line. 

Having said that, CMS's cash management business is largely route-based in nature. And seeing as this business contributes to the chunk of its revenues (78.11% as of FY21), the sustainability of this segment faces an imminent risk from the increase in cashless transactions and increased dependency on digital money. 

In addition, considering that the entire issue is an offer for sale, which means that the existing promoters are selling their stake, it indicates that there is no inflow of money into the company for its business needs. This slightly calls into question the reason and timing of the issue.


Industry Overview and IPO Scans

At the higher price band of ₹216 ($2.8), CMS is commanding a P/E of 19.48 which is squarely in-line with SIS Limited, it's only listed peer, perhaps indicating a similar growth outlook notwithstanding CMS’s market leadership position. 

In the cash management business, CMS competes with SIS, Brinks and Radiant and in the ATM management services it competes with NCR and Hitachi. CMS, however, maintains its industry leadership in both these segments. 

The company's strengths mostly lie in its underlying fundamentals which remain strong and in its deep penetration in the growing markets. Its long-standing customer relationships have also helped in promoting business which it has cultivated over the years to build robust systems and processes that manage and scale operationally complex business such as cash management. 

But with more and more Neobanks making their debut and digital lending and financial services carving up their niche and cutting-edge presence in India lately, the business of CMS runs the risk of downsizing as economies start shying away from cash transactions in the long run, especially in areas inaccessible to cash facilities. 

Despite that, the availability and use of cash still continues to remain the predominant mode of payment in India. The shift in consumer trends which dictate a switch to non-cash modes of payment like credit cards, debit cards, POS terminals, store-valued cards, mobile payments, online payments etc., are arguably still in their nascent stages and may take a while before becoming the popular preference, partly due to the largely unorganised nature of the Indian economy. 

Plus, the penetration rate of ATMs in India is strikingly low (22 per 100,000 individuals) which presents immense room for growth. The ATM base in India is expected to increase from 255,000 in FY21 to 365,000 by FY27 (pg. 131, RHP). With a rise in disposable incomes and infrastructural growth, construction of ATMs and cash points are highly expected which will drive more business for cash management companies like CMS. 

The industry in which CMS operates is undergoing a maturing and consolidation process driven primarily by RBI's operating standards and emerging customer preferences. Changing industry trends could thus determine changing pricing behaviours in the future which could directly impact CMS's operation and financials.

However, given the strength of relationships with existing customers, there is a case to be made for CMS’s ability in incubating and potentially building new service lines. 

In any case, given the company's dependence on a single sector, high client concentration and possible impact on business due to a Third COVID Wave, the success of the upcoming IPO remains highly circumspect. With the Omicron variant looming and economic recovery meandering, December 31st will tell whether CMS, with its public debut, ends the year with a bang. 


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