Ladies and gentlemen, good day, and welcome to CMS Info Systems Limited Q1 FY 2024 earnings conference call, hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Balaji Subramanian from IIFL Securities. Thank you, and over to you, sir.
Thank you, Neerav. Ladies and gentlemen, good day, and thank you for joining us on the post-results conference call of CMS Info Systems Limited. It's my pleasure to introduce the senior management team of CMS, who are here with us today to discuss the results. We have with us Mr. Rajiv Kaul, Executive Vice Chairman and CEO, Whole-Time Director, Pankaj Khandelwal, President and CFO, Mr. Anush Raghavan, President, Cash Management, and Mr. Manjunath Rao, President, Services. We will begin the call with opening remarks by the management team. After that, we will open the call for a Q&A session. I would now like to hand over the call to Mr. Rajiv Kaul to take proceedings forward. Thank you. Over to you, Rajiv.
Thank you, Balaji. Good afternoon, everyone. Thank you for taking the time to attend our Q1 FY 2024 call. Most of us have recently interacted at our Investor Day on May 25th. This call is going to specifically focus on our Q1 FY 2024 results. We continue to deliver consistent growth, with revenue growth of 13% and adjusted PAT growth of 20% in the quarter. We're happy that this is our fifth consecutive quarter with 20% year-on-year PAT growth. This is also a quarter where we hit the INR 500 crore revenue mark for our services revenue for the first time. Q1 is usually a seasonally weak quarter. Despite that, we have managed to grow on all of our key metrics. Our CFO, Pankaj, will now take us through the financial highlights.
Thank you, Rajiv. Good afternoon, everyone. Our consolidated revenue has grown by 13% to INR 512 crore, with managed services and technology solutions now contributing around 36% to overall revenue. Our adjusted EBITDA has grown 19% to INR 152 crore, and our adjusted EBITDA margin profile is now 29.6%, a year-on-year improvement of 160 basis points. Our adjusted PAT has grown by 22% to INR 87 crore, making this ninth out of 10 quarters for 20%-plus PAT growth. These numbers are testimony to our market leadership and execution of our order book won over the last years. Both of our business segments have delivered strong results. I now hand over the call to Anush Raghavan, President of our cash logistics business, for more insight into the business performance.
Thank you, Pankaj. Good afternoon, everybody. Our cash business revenue has grown by 12% year-on-year to INR 351 crores in the Q1, with an EBIT growth of 2% to INR 94 crores. The EBIT margin has further expanded by 218 basis points year-on-year to 28.6% in this quarter. In May, we had released our first India Cash Vibrancy Report, which is the first-ever report on cash usage trends in India, which highlighted the robust usage across geographies and sectors. We continue to see strong usage trends in currency in this Q1. Our network had the highest-ever currency throughput of INR 3.3 lakh crores. We also continue to see the trend of currency usage growing in metros by 10% year-on-year, outpacing the growth in semi-urban and rural India.
Our business network has further expanded in this quarter, and we currently service 126,000 business points, a 10% year-on-year growth. On the corporate front, we are seeing a strong momentum in cassette swap implementation. This has been reinforced by the regulators' push and an industry-wide consensus. We are now targeting a one-third cassette swap compliance of ATMs by the end of FY 2024. With that, I now request my colleague, Manjunath Rao, to share with you an update on the managed services and tech solutions business.
Thank you, Anush. Our managed services and tech solutions business revenue has grown 17% year-on-year to INR 182 crores in Q1, with EBIT growth of 15% to INR 34 crores. Our EBIT margins stood at 18.7% in the quarter. We have successfully completed the execution of ATM managed services of 5,200 ATMs for a large public sector banks across 526 cities and towns in 26 states. In our AIoT remote monitoring business, we are investing in building AI modules and are conducting pilots in other verticals. In this year, we expect to see key large PSU RFPs for both automation and ATM as a service business lines. Just to close out, we reiterate our FY 2025 revenue target of INR 2,500 crores-INR 2,700 crores.
Thank you for your support and attending this call. We can now move to the Q&A. Thank you very much. We'll now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two.
Participants are requested to use handouts while asking a question. Ladies and gentlemen, we will wait for a moment while the questions were settled. Participants, you may press star and one to ask the question. The first question is from the line of Varun Darji, Individual Investor. Please go ahead.
Thank you for the opportunity. Congratulations on the wonderful set of numbers. Sir, I wanted to ask a couple of questions. Thank you, first of all, for the very detailed transcript that was shared on the exchange website. While I know the call is specifically for the Q1 results, I have a few questions around the business, right? You had mentioned that, you know, 40% of the ATMs are being serviced, are still being serviced by banks, while 60% is being outsourced to players like CMS, right? How do you see the roadmap going forward for this existing 40%, which is managed by banks, and the incremental one that banks will deploy in, let's say, 2 to 5 years of time? What is the trend directionally that you see?
Secondly, on the trade receivable numbers as well. The trade receivable numbers is INR 451 crores as of March 2020. That's broadly in that range for the last two, three years, right? I was just curious to understand why is that number so high. Is that something that is particular to the industry, or that number be very similar for your competitors as well? Thank you.
Yeah. Varun, hi, this is Anush here. I'll take the first part, and Pankaj will answer your second part of the question. As far as the outsourcing trend is concerned, we've sort of shared this in some of our previous calls as well, this is a longer term trend. 8, 10 years back, perhaps, there was a greater majority of ATMs which the banks were servicing themselves as opposed to what they were outsourcing. With each new iteration of RFP and the outsourcing, there's a greater percentage of ATMs where banks choose to outsource. It's really a function of what is the comfort and the soft quality of outsourcing, sophistication of that, which is being adopted by the banks, number one.
Second, a lot of these ATMs which are serviced by the banks themselves are typically on-site branch ATMs, which is the public sector banks. The private sector banks almost outsource their ATMs. Now, as incrementally, the public sector banks are getting comfortable with moving to an end-to-end outsourcing project, we are seeing a greater number of ATMs which are coming, which used to be branch managed, moving to outsource. This will still take time. This will still take a few years for those trends to continue. You know, what used to be 50% earlier has become 60%, and we expect this to keep increasing upwards. Pankaj?
On the trade receivable, one, we don't comment on our competitors. As regards CMS is concerned, if you see the FY 2021-2023, there is around 25 year so improvement.
Okay, understood. Understood. Sir, as of June 30, 2023, how many ATMs would CMS mention? I think the last time that number was 72,000, right? What would be that number as of June 30, 2023? What do you think the number two and number three players, of course, without putting in a name, how much would they be maximum?
As far as the second part is concerned, Varun, sorry, can't really help you with that. We also, you know, had mentioned this again in some of our earlier calls. As far as the detailed breakup of the business-wise statistics are concerned, we would prefer to share that on annual basis. A quarterly frequency is not really appropriate. What we do report on a quarterly KPI basis are more the consolidated business points.
Okay, thank you. Very helpful. I'll rejoin the question as I have a few more questions. Thank you.
Thank you. Next question is from the line of Prithvish Uppal from Asian Markets Securities. Please go ahead.
Thank you for taking my question, congratulations on a really good performance. Couple of questions. First, I just wanted to understand the roadmap of the managed services business, as well as, in particular, the AIoT business. How do you see that scaling up into the ambition of, you know, doubling the FY 2021 revenue by FY 2025? How are we positioning specifically the AIoT business in terms of, you know, ancillary, like you spoke of certain pilot projects. What has been the feedback there? In terms of increasing the number of touch points that we have in that business as well, how are we perceived vis-a-vis, you know, the competition?
That would be the first part of the question. Second is, you know, if, if, you could possibly give a breakup of, you know, even FY 2023, the split of the cash management business within the ATM cash management, the cash in transit, and the retail, you know, cash management business, that would be, you know, just would be helpful. Thirdly, you know, what are the uses of, you know, the cash that we are earmarking, in terms, specifically in terms of growth? Where are we seeing investment opportunities, going ahead? Three questions.
Thank you, Prithvish. This is Manjunath. I'll take the question on your remote monitoring services. As you know, our remote monitoring services was launched in 2021, which is now at an annual run rate of about INR 100 crores, and is also the largest in the BFSI sector. We already have about 20,000 sites plus live and we are further investing in AI modules for new cases. Our overall MS and tech business has scaled to greater than 35% of the revenue. We are aiming for our RMS and software business to be about 8%-10% of our revenue by FY 2027. Does that answer your question?
I think that's the first one. Yeah, understood. 8%-10% by FY 2027 is what we will be targeting in terms of the remote monitoring business?
Yes.
Okay.
Remote monitoring and our software businesses.
Software businesses.
The tech business.
Okay, okay. This does not include the AIoT? Oh, sorry, this is the AIoT business.
This is the AIoT.
Sorry, go on.
The second question was around. Cash on books. On cash. I think from an M&A perspective, you know, we have, not M&A, I think just from a cash on books over the last 2 years, Pankaj Khandelwal, we invested how much for CapEx?
INR 350 crore for the growth CapEx.
Yeah.
And, uh, we are-
INR 100 crore of maintenance CapEx. Roughly. As we invested about INR 420 crore of cash in the last two years for both growth and maintenance CapEx. We have given a general direction that this year, capital spend could be in the INR 150-175 crore range, which would include both expansion into adjacencies, in growth capital for new wins we have, and some maintenance CapEx and upgradation of our network. We, I think we have just one more question, which we, if you can just repeat.
Yeah.
I think so we don't give a breakup of segment-wise, sub-segment-wise split. I think that's what we have, and what we share is broadly between our cash business and the MS. Within each businesses, then we don't give a detailed breakup.
I mean, my perspective actually was, for asking that was specifically in terms of retail cash management and the opportunity. You know, because last couple of years, the growth rate would have probably been slightly on the lower end because of, you know, the COVID and pandemic-related disruption. You know, just some color in terms of how we are seeing specifically the retail cash management business growing, both in terms of touch points, pricing and, you know, just some color on that.
Okay, I can try to help you with some of that, Prithvi. I think, you know, during the investor call, we had shared some March end statistic, which is split of our business points by ATM and retail, which is roughly about 72,000 ATMs and about 52,000 retail touchpoints. That will give you a sense of what that, at least the business point split is, if not on the revenue. As far as retail is concerned, if you look back the last few years, a lot of our growth has been powered by the growth of the ATM network in the country, as well as incremental outsourcing. As we alluded to it, that trend will continue into the mid to long term, especially as banks seek to increase their footprint and also get into further end-to-end outsourcing.
In addition to that, we are now seeing a strong aggressive intent on part of large organized retail formats to expand their footprint in the country. As we are recovering from the whole COVID impact and as consumer spending is coming back, a lot of them have both publicly and in our conversations, alluded to wanting to expand and open up, especially on the physical infrastructure side. Even people who are running so far, very digital businesses, are very keen to get into physical side.
I think when we think of it, you know, from a mid to long-term perspective, this is from a really, from a 5 to 10-year story, I think the retail and, the growth of retail, the growth of consumption, and the growth of, and all of that will have a significant tailwind into how feeds into our business growth.
Okay. Understood. Okay, yeah, that's it from my side for now. All the best. If there are further questions, I'll join back in the queue.
Thank you. Next question is from Poojan Shah, from Consortium Investment Advisors . Please go ahead.
Hi, sir. Few questions from my side. First question would be, as we are saying, that the 40% of the ATMs have not been still coming out from the bank, are like managed by the bank. Are there any restrictions or it is been like how I'm not able to understand that, why it is being so slow from the bank side? Because our banks wanted to be an asset light or like that. What could be the reason for that, specifically?
I think if I understood your question right, you're asking why are 40% of ATMs even managed by the banks themselves? I think earlier, if you look at it, the banks used to only enter into pure managed services contracts for a fixed fee basis, not end-to-end outsourcing contracts. As a result of which, the public sector banks especially, found it convenient to continue managing the branch of the on-site ATMs themselves, and outsource the optimizers, off-site ATMs to managed service providers. That trend is changing. As the public sector banks are getting more comfortable moving to end-to-end outsourcing, as and when those RFPs come up, those ATMs which are managed by the branches switch into an outsourcing model.
Okay, got it. Sir, as you announced that we will deploy some INR 150-175 odd crores of capital into expansion plus maintenance. If we look at the historical capital flow, we have invested INR 70 crores for the maintenance for last trajectory. If we consider that cost, are we have any plan for the M&A specific, which we have been eyeing to and we are trying to acquiring or any deals, deal flow is going on specific for that?
This, the, you know, the capital plan, which we have indicated to our investors or at both the Investor Day and today, is mostly for our growth and maintenance CapEx. It's very difficult to predict what will be the spend for M&A. That will be specific to an opportunity. As and when we have anything to report on M&A, we will come and update you for sure.
Okay.
From a maintenance CapEx, I think the ratio should remain the same as you've seen in the last two years. As the CFO shared with you, we have spent about INR 420 crores, out of which around INR 300 crores would have been in maintenance CapEx. Similar ratio should continue for this year.
Major CapEx will be more for the BLA side, because we have been deploying the capital?
No, I think when you think about our growth CapEx, it is towards the order book, it's towards our business lines, both in AIOT, ATM as a service, which you are talking about, and also investment in fleet upgradation for our network and for RBI compliance. It will be a combination of these things. Also, the investments is going into incubating some of the new business lines we have shared at the investor day. Finally, for implementing the work we are doing in the technology side.
Okay.
It's across the spec, whole spectrum of things.
Okay. The current order book, as we have seen, I have seen that INR 150 crore is from the managed service. Total order book size, if you can, spell it out.
It's INR 3,300 crores.
INR 3,000.
We report order book for our managed services business only, specifically for that business. Our cumulative order book over the last two and a half years, there is now at INR 3,300 crores. INR 150 crores was addition to the order book in Q1 of this year.
How much of the order book has been completed over this accumulated order book?
90%.
90%. Okay, okay. Last question would be on my side would be, have we faced any union-related issue? Because in DISP, I have read somewhere we are facing some, we have faced in the historical, we have faced 17, 18 issues related to the union base due to employee related service, and we have also been closed out our Kolkata services in some of the parts. Have we faced a similar situation in the next, in the previous 2 years?
No, we've not. No. Those have been more once in a very rare occurrence situations. Having said that, we've been entering into collective bargaining agreements, having long-term settlements with unions is sort of part and parcel of our business, we've not had any such situations in the last two years.
Okay, got it. Thank you so much, sir.
Thank you. Next question is from the line of Pratik Chheda from Guardian Capital Partners. Please go ahead.
Thanks for taking my question. My question pertains to the cash management business. In this business, on a QOQ basis, we've been seeing consistent growth of around 2, maybe 2%-5% every quarter for the last six, seven quarters. This quarter is sort of flat. Just wanted to understand, is there any one-off? Is there any delay in some execution of the projects?
Pratik, in our cash business, usually has a Q1, which is seasonally a weaker quarter. Last year, Q1, we didn't see that trend simply because the year-on-year was also linked to pre-COVID time. I think Q1 is something we do see usually a dip versus Q4. Still, the cash business has had the same revenue as in Q4, which is, I think, pretty good. There are some ups and downs which happen in business on a quarterly basis, but nothing significant, which will have a material impact.
Got it. Second question I want to understand is on the margins front. Now, on the cash management business, we've reached EBIT margins of around 26.8%, so around 27%. Now, are these banks coming back and sort of sitting on a table and renegotiating pricing with you? How are you thinking about EBIT margin going forward? Have you reached a peak, or is there any further improvement which can come in through operating efficiency or through pricing?
As you've known us for some time now, you know, we don't comment on margins. I think for the team to manage and balance our goals for revenue growth, margin and market share is something which we are actually working on every quarter. From the perspective of bargaining and negotiation, I think that's part and parcel of every B2B business. You and other investors will appreciate that what we have is a network density business, where margins are blended over multiple customers and business lines, and you do a roundabout network, which is not very easy to either replicate or to disaggregate. A large part of, a significant part of the margin improvement in the last 2-3 years has also been with respect to growth in the network as well as automation efforts.
While we don't have any guarantee on margins maintaining themselves at the current rate, I think as a team, we've been very focused on trying to maintain a superior margin profile to the rest of the industry. Our large market share and our market infrastructure helps us achieve that.
Sure. Thank you very much.
[Uncertain] want to ask a question? Next question is from the line of Amarnath Bhagat, from Ministry of Finance, Oman. Please go ahead.
Yeah, it's Amarnath Bhagat actually. Am I audible?
Yes, we can hear you.
am I audible?
Sorry, the sound is slightly distant. If you can come little closer towards the speak.
Yeah, okay. See, actually, my first question is relating to this promoter stake sale. If we look at from the 2021 up to now, the promoter stake is continuously getting reduced, and recently there was a promoter sale, which is of course, bought by somebody else. What is the reason, if the management was so strong, the outlook is so strong, what is the reason of this continuous promoter stakes reduction?
If you look at our promoter of CMS, our promoter is Sion Investment Holdings. Sion Investment Holdings is a company out of Singapore, which is in turn owned an investee company of Baring Private Equity Asia, which is a large PE firm in Asia. Baring and their holding company have been investors in CMS for over seven years, and as part of their own exit process, they will look at exiting their stakes in investee companies.
You should think of this as a financial investor and not a strategic investor, and the financial investors have timelines and plans for exiting stakes and reducing them. In fact, many other investors have been keen to know as to how does the promoter stake go down, but they feel the so that the stock can be more widely held among institutions.
Yeah. That means we can expect a further selling from this Sion Investment Holdings in the future time to come?
I mean, logically, yes. I mean, you know, we as a team, obviously will not have insight or won't be able to comment on what Sion's plans may be. Logically, if you look at the trend of any PE shareholder, the stake, they would look at exiting the stake over a period of time.
Oh, okay. The second question is a little bit on a strategy side. See, as you say, the opportunity side for the cash management is increasing, but on the other side, if we track the government different announcement, the government is continuously emphasizing on a cash reduction or cashless transaction, and accordingly, the UPI-related transactions are getting prominence every month to month, and the transaction happening there is just booming. In that context, just trying to understand, though, the country like India, we know it cannot be a completely cashless because of our democracy.
The growth, what you're projecting from the cash management services vis-à-vis the current trend of the huge growth in the UPI transaction, how these two are going side by side? If I assume the UPI will take more prominence, which will be the case, will it not be affecting your cash management business going forward?
I think, you know, one of a helpful background read to this in a more detailed manner would be, you know, during our annual event on May 25th, we published a very detailed report, which was a Cash Vibrancy Report, which sought to try and explain, using as much of our data as possible, where is currency coming from and where is it being spent in the country, and what are some of the more longer-term trends around that. It's available on the website. It might help to-
Yeah, I have seen that, sir.
Sure.
I have seen in detail. The question is coming that whatever data has been presented, to be very frank, in that May, is mostly depending on the past data. The future, I'm talking about the way the UPI is getting acceptable, even at the very lowest strata of the economy, including the bhajiwala and chaiwala and all. Even we can see in our day-to-day transactions, our frequency to go to ATM to withdraw the cash or deposit the cash has substantially come down compared to what it was. I'm looking to the futuristic part. How do you give the kind of a confidence to the investor that this is not going to impact your cash management business substantially?
I think it's a fair point, and we think of it from a few prisms. One, what are we betting on here? We're betting on the fact that our growth. When you think of CMS, you should think of it as an integrated platform for both cash logistics and managed services and AI remote monitoring. We serve banks. We help banks cut down their costs in managing their infrastructure better and cheaper. Some part of that revenue is from cash logistics areas, which is now two-thirds of our revenue. We feel there is a lot of opportunity in the coming five to seven years, which will come from organic growth, which will be slower than before for sure, but with higher outsourcing from banks, I think that should compensate.
When you drill down into specific sectors like retail, where we feel that more formalization basis GST and more organized retail forming in India, will create an opportunity for retail cash management business to grow much faster than other cash logistic areas. That gives us the opportunity for growth. The third has been our entire expansion into technology-related services. What we have done in managed services, in banking automation, and then AI remote monitoring, all of these were 0% of revenue in FY16, and now 34%, 35%, 36% of our revenue. We look at expanding our business lines into where we can add value to customers, and we look at that as a way to grow. We think of it, yes, we are talking about the past, but that's the only data we have.
We don't have forward data. We do think that India, there's a lot of potential for, I would say, informal cash, to move to organized cash, where it comes into a banking system. When 2,000 rupee notes come back into the banking system, there is a velocity and a transaction opportunity for people to deposit and then to withdraw again. Yes, we do see UPI-led payments growing rapidly, but I think the whole digital payments is something that's not a one-year phenomenon. We have seen that from 2016, 2017 onwards. Their growth rates have moderated. The nature of the digital payments, they will grow faster than cash, but we've also seen cash growing fairly healthily and very robust number.
Yeah, thank you for this detailed explanation. Just one more thing. Regarding this, IoT, AI and IoT-related things. At the moment, I think you are doing only for this ATM part, the security, the physical replacement of the physical security by this digital security. Is it possible to extend this business segment outside the ATM to other segment of the business, means in retail or somewhere? Because if this is the innovation product or innovative product you guys have started, and probably you are one of the first mover to, in doing this. I'm just trying to extrapolate, is this possibly can go beyond ATM in some point of time in future, or the business is restricted towards the ATM centers only?
Thank you, sir. At, we as in my earlier introduction, I did mention that we are investing in AI modules to expand into other sectors. ATM was the low-hanging fruit. We moved in, and we have set ourselves very well. We also have done many bank branches, and due to the recent MHA guideline, for the financial services branches as well as for the NBFC sectors, there is an increased interest in the branch security systems. That's a new area, there's a lot of interest, and it's growing. We also set up a lot of use cases, piloting in hospitality, in pharma industries. There is a lot of things going on at this moment, and we are incubating new businesses and new clients in this remote monitoring services.
Yeah, okay. My last question, sir, if we may please at all. With respect to you are saying that. Yeah, just one more.
Sure.
What's your current market share at the moment? You were saying you are the market leader in the cash management and this retail management. Exactly what is your market share? Do you have the data?
I think, to look at it, the different parts of the cash business, there is the cash management, we also do retail, and then there is CIT. Each of those would have different market structures and will have different shares. On the whole, if you look at our, the cash revenues, we get roughly 40% plus the revenue share of the overall cash market.
That other side of the business, wherever you were saying that you are the number one?
In AIoT remote monitoring, we are number one. I don't know our market share there because a lot of this ATM market is still in transition to moving to the new technology standards. We would estimate we would be at least 25%. Let me not give you a number off the cuff, but we are the highest number of installed sites there right now, compared to anybody else.
Thank you. The next question is from Akshat Haria, from Multi-Act Equity PMS. Please go ahead.
Thanks. This is Darshan Shah from Multi-Act. I have two questions. One is, can you elaborate on the nature of cash losses that we report and how it is accounted in the income statement, as there are multiple line items? Second is, when we look at cash loss percentage in the ATM business versus retail cash management, there is a significant difference between the two. Can you elaborate on the what is leading to such big difference?
There is 2 type of cash losses. One is that the cash losses in transit or the larger infidelity, wherein whatever the difference, what we get from the insurance claim and the total loss, we should book as a cash loss in transit. The rest of the claims, which are the smaller in nature or the reconciliation losses, that is part and parcel of our AR provisioning. If you see in any of our financial, there is a 3 line items you will see. The one is that cash loss in transit, second one is the bad debt, and third one is the provision for doubtful debts.
Okay, this provision relates to reconciliation difference, provision and bad debts?
Yes. No problems.
When we look at it as a % of revenue, this number looks very significant, and even as a % of, let's check, cash handled, it's very high when we compare it with retail cash management. We are unable to figure out what is leading to such high numbers?
Anush can maybe tell you a little bit, no one's between the ATM and retail side of the business and processes and what is the difference. Maybe that will help you understand this.
See, one is that whatever the value of the currency we handle, like last year, we handled INR 13 lakh crore. In comparison to that, whatever the provision we have made or losses are insignificant, very difficult to calculate that. Generally, if I will calculate on the percentage of our revenue, it is coming to around 5% of our revenue.
I think as soon as the ATM versus retail is concerned, while I'm sure we don't break down the numbers by our business lines, so you might be comparing it to other people, but we don't know what is the exact accounting that people apply. Generally speaking, you know, ultimately, both ATM and retail have a very strong element of risk management to them.
The structurally, when you look at it, whether globally or in India, the ATM business or ATM cash logistics by itself has a slightly higher degree of risk cost because of the nature of the business, which is we are responsible for the safe logistics of the currency from the bank to our vault, processing of this money, you put that money into an ATM, and then there is also the fidelity risk of the cash while it is at an ATM. There's also what used to be known as what Pankaj was trying to explain as reconciliation differences, so what the industry sometimes call chargebacks. These are those transactions for which, you know, customers who make a transaction at an ATM and sometimes do not receive the cash, make a claim on the bank. A lot of that processing needs to be...
A lot of those claims need to be processed and settled with the bank. ATM by itself is officially a very different type of work. It is a lot more intensive, it involves a greater degree of risk, and a lot of that is reflected into the pricing and the realizations that people are either pricing for it or charging for that. The difference in the retail cash operation is it, you know, the reconciliation happens almost on a daily basis because you pick up money from a retail location, you process it, and then you submit it to a bank.
It's almost sort of instantaneous. Second, the ticket sizes or the values at risk in terms of the exposure are a little lesser in terms of what one typically handles, deals with at an ATM. Having said that, the nature of cash and transit exposure is reasonably similar for both.
Okay, thanks. That's it from my side.
Thank you. Next question is from the line of Asim, from Bain Capital Advisors. Please go ahead.
Hey, hi, Rajiv and team. My question is more hypothetical. I wanted to hear your thoughts on this. Ever since RBI compliance norms start to get implemented, it became a more level playing field for larger players, industry consolidation began in favor of the big guys. At the same time, the TAM, even if I just look at the ATM, RCM, CIT, and maybe the BLAs put together, it looks quite lucrative for scale. At least your margins and return ratios are also fantastic, enough to attract attention of competitors. My question is, you know, what stocks are well player to enter the space? They may not have the margin that you have, given the network density for now, if they do come in, what does that do to industry pricing, at least in short term?
Second, is there space for another player to coexist with the larger guys? Third, will banks work with a new player who might be open-minded on pricing, as it has happened in the past? Would banks rather stick with larger guys, given the network and penetration of you guys?
Asim, let me try and give you perspective. You know, you want to keep in mind that over the last six months, we have been highlighting that the market is attractive, it's doing well with compliance norms kicking in. It becomes an attractive country and segment for large in multinational veterans, new companies to think about, right? I don't think there is any place to think about it. I think it is an attractive market and can attract competition, and we have been alluding to the fact that we may see more competitive intensity in the coming year or two. Coming to the second point about what provide...
I think anybody new who wants to get into this business, and not just new, if you look at the history of the sector, there have been companies which have vacated a couple of the subsectors because it became unviable for them. They could launch back operations. There's nothing to stop them from trying to launch back operation. Now, building that scale, building that capacity, and trying to then run that network at a high-quality basis over time, yes, it is possible. What impact can have on pricing? That I think is very difficult scenario to, for me to really give you an answer on. People can enter the segment and give a count to get business. We feel that, in this, if there is a churn like that, there will be churn between the current three and a half players.
Where shares should start switching from, let's say, a lower quality player, whoever that may be, or in whichever geography that may be. Sometimes there are people have respective strength in respective geographies. It may move to a little bit to a newer player or a new, you know, hypothetically, international company wants to come into India because they think the compliance norms make it now worthwhile for them. That's what we could foresee. I'm sure share will shift between companies at that time. Will it move to, from the strongest and the largest to this company, or will it move from a weaker to this? I think that-
... will, is a scenario we'll have to wait and see when it actually happens. The second thing I think I want to clarify here is that this is a scenario which is possible, specifically, I guess, for the ATM side, which is where the compliance rollout has been more ahead of the other sectors.
Okay, okay. Still, I think, the one line point I can take, it is competition can and will most likely come in, but at least the larger guys have the moats already in place, so they should be ideally least affected, in at least in the medium term.
I mean, yes, but you know, again, like I said, this is hypothetical, and we'll have to see when these things pan out, what our response will be. We have maintained that as a market share leader in the sector, we will have to be flexible and agile to balance our market share with our goals on revenue and profit. I think we've done a splendid job of managing and balancing these three. Every quarter is not possible to do this, and if there is a threat to market share, we will, of course, have to be very aggressive at that time.
Sure. Sure. The second question is on BLAs. So in cash management side, you have 72,000 ATMs right now. I presume on BLA you would be maybe 10% or maybe a little less or more than 10% of those 72,000. Is there any rough percentage number of your ATMs that you would want to be in BLA in the future? Say, maybe 40%, 50%, where, you know, at least the EBIT margins overall and return ratios remain healthy. Also, like the 8%-10% revenue goal for remote monitoring that you have said by 2027, is there a similar revenue percentage goal in mind for BLAs as well?
I won't comment on our current unit numbers for this quarter. I think we'll stick to the numbers we guided for in FY 2023 end. What we have said, Asim, both during IPO time and after IPO time, is that we aim to keep our exposure in some way to the ATM as a service, which is a BLA business, to about 15% of revenue. We were at the end of FY 2023 at about 5,000 odd ATMs in that business. We are very focused in this business on very specific banks to work with. We are not a broad market player. We are a niche market player, focusing on a few banks to work with.
The broader BLA market in India, our estimate is about 90,000 odd, out of which we will be doing about 5,000-5,500 odd right now. If there is anything up which comes up for a bid or for a project which is of, which meets our return metrics, we'll of course should be a good player, given our integrated offerings, to be able to bid for it. Given the nature of the business, the capital intensity, and these are long-term projects, we as a team would like to position sizes to about 15% of our revenue streams.
Okay, sure. Thanks a lot.
Thank you. Next question is from the line of Pranav Mehta from ValueQuest Investment Advisors. Please go ahead.
Hi, sir. Thanks for this opportunity. A couple of questions. If we look at the revenue growth for this quarter, at around 13%, seems a tad lower than the average of, say, around 20% odd that we have been doing since the last couple of years. Just wanted your thoughts on what has led to this kind of number. Secondly, slightly longer-term question on our margin profile. You know, we have been able to improve our margin significantly in the last couple of years, and the reasons are well articulated. Now as we move towards the FY 2025 target of, say, INR 2,600 crore revenue, how do you see the margin profile moving in the next couple of years at that scale? These are my two questions. Thank you.
Pranav, I think for your question, first question, you know, the problem about having very strong performance in the last couple of years at 20%+ is that expectations get built into that. If you think from our perspective, right from IPO time, we have guided towards the FY 2025 revenue goal, which is what we are focused on, which is a revenue of INR 2,500-INR 2,700 crores. If you look at our last year number, of INR 1,915 odd crores, we are still guiding towards achieving that target at FY 2025. That will mean a 15%-16% growth average for the FY 2024-FY 2025. Q1 at 13%, I would not read too much into this. I think Q1 is usually, as I said, has a seasonal, usually seasonal, seasonally weaker quarter.
We have still done reasonably well, we will have to see what we are reading in the commentary of other quarterly earnings basis, retail and consumption and inflation and spend. We hope that growth continues in consumers, because that will be important for our both ATM withdrawals and retail business in the coming quarters. One quarter is too early to start commenting on. I think we gave a fairly detailed presentation at the investor update.
Maybe in the coming quarters, at the end of each one, we will have a better sense of how the year is moving from a macroeconomic perspective and specifically for our business. As of now, I think we are in line to achieve our FY 2025 revenue target. Margins, we have not guided towards at all. We have no margin guidance at all. We will refrain from giving any margin guidance.
Sure. Thanks a lot.
Thank you. Next question is from the line of Vaibhav, from BNP Paribas Asset Management. Please go ahead.
Hi, I'm Alduin.
Hello?
Thank you. My question is regarding, since in the previous questions you answered that, even if the advent of the UPI transaction, if the revenue will somehow be lower, then the revenue will be compensated by the other adjacent area you are operating in. Traditionally, as it's been seen, that the management service part of your business is a little high, CapEx intensive than the cash logistics. Can we expect that the return ratio will be lower, if we, if the contribution from the managed service will increase in the revenue part?
You know, I would like to point out a couple of things here. One, our revenue CAGR since inception in 2009 till now has been 17%, through good and bad years, right? It's a fairly high growth rate, which our team and company has maintained through ups and downs of the macro and the sector itself. Coming specifically to your question on the capital intensity in some parts of our managed services businesses, I think what you should look at is, if you look at our ROE numbers, our ROE has consistently increased over the last 3 to 4 years, despite the CapEx in the last 2 years, our ROE is from 20%-21% in FY 2022 to FY 2023.
What is happening is the fact that orders don't always come separately by segment. Increasingly, a bank, a large bank, will outsource end-to-end, and that component of the order will have many elements of our services. Some will have all our services, some will have some of our services, and therefore, margins will sort of blend across these revenue lines for us. You already see the trend line in revenue and managed services, but you also have to keep in mind, when you see a managed services EBIT margin, it also includes the EBIT, sorry, includes the product automation business. The product automation business, by the nature of the business, is a lower margin business, but has no capital intensity at all. If you think about our services business, I think our managed services business, the services EBIT has grown very well.
It cannot match the EBIT % of the cash management business, which we've been running for the last 20 years, but I think it's a fairly healthy return. I think we are able to generate good return for the capital we are deploying.
Okay, okay, right. It's like, it's becoming a necessity part of the business, that providing managed services become a kind of necessity when you go to the banks for the business.
I mean, it's more than necessary. I think it's a large TAM. It's a large TAM, which you can win with, you can do. It's about getting more wallet share. If a bank is spending INR 100 on different services and you are only operating in a 30, if you think you build the capability to offer them the remainder, you want to do that, right? Any enterprise B2B company would want to do more and more with the same customer. If you think of most of our large banks, 20 years ago, we did maybe only retail cash management, then we moved to Indian cash management, then we moved to cash and transit, then we moved to automation.
In the last 5 years, we moved to BLA as a service, and now in the last 2 years, we have started doing remote monitoring services. Our goal will remain to grow with the BFSI sector, which is banks and NBFCs, and offering them new services. I think more than necessary, it's about expanding the TAM for us and the opportunity for us to grow.
Okay. Regarding the cash on the books, do you think that the company is generating the enough internal accrual, so dividend payout will be a good option, considering the CapEx cycle is behind us, high CapEx cycle?
In past, you will see that we have given a 25% of the dividend. In last two years, as I told that INR 420 crore, we have spent for the CapEx, so growth CapEx. We have not taken any loan. A fairly good amount is sitting on our books, around INR 450 crore of the cash and cash equivalent, which is sitting on our books as on March 31, 2023.
Okay, right. Thanks for the opportunity.
Thank you. I now hand the conference over to Mr. Rajiv Kaul for closing comments.
Well, thank you, Balaji, for hosting the call for us. I thank you to all our investors for your continued support and intensive questions. I hope that we will deliver a good year for you in the coming nine months. We'll talk to you at the end of H1 and the Q2 then. Thank you so much.
Thank you very much. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.