“We anticipate a positive long-term impact, where consumers would be using the ATM frequently for lower denomination currency notes, thus increasing cash velocity,” says Pankaj Khandelwal, President & Chief Financial Officer, CMS Info Systems. Edited excerpts from a chat:
This was your fifth consecutive quarter with 20% year-on-year PAT growth. What’s helping you keep up the momentum?
We have continued to deliver consistent YoY growth with a revenue uptick of 13 per cent and adjusted PAT growth of 22 per cent in the quarter. The robust PAT growth is driven by a combination of strong revenue and margin expansion. After the IPO, our yearly revenue growth has been more than 20 per cent for FY22 & FY23 led by strong volume growth in the Cash Logistics business, execution of the Order Book in Managed Services business and ramp-up of new business-AIoT Remote Monitoring Solution. Our PAT Margins have expanded from 13 per cent in FY21 to 17 per cent in Q1’FY24, primarily led by two factors – a change in the business mix with an increasing share of services/technology revenues and productivity improvement in cash logistics driven by automation.
Do you think that the discontinuance of Rs 2,000 notes and shift to lower-value notes will increase engagements at ATMs? Do you see this as a tailwind for the business?
Less than 10 per cent of ATMs in the country were dispensing INR 2,000 denomination, therefore, the short-term impact of the withdrawal was not material. With over two-thirds of the 2000-rupee currency note back in the banking system, there will be a further infusion of liquidity in the banking sector. This can lead to higher credit growth thereby boosting consumption.
We anticipate a positive long-term impact, where consumers would be using the ATM frequently for lower denomination currency notes, thus increasing cash velocity.
Cash management revenue growth at 12% YoY was lower than in recent quarters. Do you see growth to return to normal levels Q2 onwards?
We have seen a strong momentum in business with YoY points growth of 10 per cent from 115k to 126k. We have also seen the highest-ever Cash Throughput through our channel at INR 3.3 Tn, in Q1’FY24. There is a growing trend of currency usage in metros with a 10 per cent year-on-year increase on a per-point basis, outpacing the growth in semi-urban and rural India. While Q1 is traditionally a weak quarter, our revenue has been steady despite unseasonal rains impacting rural consumption and the withdrawal of 2k currency notes.
What is the guidance for FY24?
We refrain from providing any short-term guidance. The only public guidance which we have given post IPO is about doubling our revenue to INR 2,500 -2,700 cr by FY25 from a base of INR1,300 cr in FY21. We have achieved over 20 per cent growth in the first two years and are well on track to achieving our FY25 target. The formalization of the economy, growth in consumption, and our strong order book position us well in continuing to deliver our target of doubling revenues from FY21 to FY25 with an 18 per cent CAGR.
How does the deal pipeline look like and what are the capex plans?
We continue to maintain a strong momentum on new wins. In Q1’FY24, we had new wins of INR 150 cr, while our overall order book has expanded from INR 2,000 cr at the time of IPO to INR 3,300 cr as of Q1’FY24.
We expect our capex to be in the range of INR 150-175 cr basis the current visibility of growth and expansion. The capex may be higher in case of any large new wins.
What are your business growth drivers for the long term in the banking segment?
With India poised for a period of secular growth, our banking physical infrastructure is well placed for expansion with most private sector banks having announced their network expansion plans for customer acquisition. While public sector banks have an extensive presence across the country, they are entering a refresh cycle of smart ATMs, self-service kiosks, digital banking units, etc for a blended approach of human touch and technology. With each new branch adding two new ATMs in India, banks are well placed to expand distribution, get closer to the consumer and capitalise on the credit growth. It is refreshing to see banks following a physical expansion strategy, having leveraged and promoted digital channels in the last few years, especially during the Covid phase. As our life sets back to normalcy to changing consumption patterns of various payment platforms, physical branch access is yet again proving to be an essential approach.
As banks increasingly prefer to outsource non-core activities and look for a high-quality service provider to support their physical network expansion strategy, our integrated business platform with last-mile reach across 97% of districts in India, is well positioned to capitalise on this opportunity.