Ladies and gentlemen, good day, and welcome to Q4 FY 2024 conference call of CMS Info Systems Limited. CMS Info Systems Limited is India's leading business service company, providing logistics and technology solutions to banks, financial institutions, organized retail and e-commerce companies. With the presence of across cash logistics, managed services and technology solutions. The CMS platform today includes ATM and retail cash management, banking automation, ATM as a service, AIoT remote monitoring, software solutions and card personalization capabilities. The management team will be using a presentation to take you through the highlights of the year. You can view the same through the web link. The same has also been uploaded on the website and the exchanges. 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. Achal Lohade from JM Financial Institutional Securities Limited. Thank you, and over to you, Mr. Lohade.
Thank you, Nirav. Good afternoon, everyone, and we are very pleased to host you and the management team of CMS Info Systems for the Q4 and FY 2024 earnings conference call. We have with us today from the management team of CMS Info Systems, Mr. Rajiv Kaul, CEO and Executive Vice Chairman; Mr. Pankaj Khandelwal, Chief Financial Officer; Mr. Manjunath Rao, President, Management, Managed Services; and Mr. Anush Raghavan, President, Cash Management Services. I now hand over the call to Mr. Rajiv Kaul for his opening remarks and presentation, post which we can open the floor for Q&A. Over to you, Rajiv.
Thanks, Achal. Good afternoon, everyone. Pleasure to have you on our call with us today. As we finish FY 2024, just a quick highlight financially. A very robust year, both in terms of revenue and margin growth. We had 18% revenue growth and about 23% margin growth, while maintaining a very solid OCF conversion. We also end of the year, our cash and cash equivalents grew from about INR 450 crore last year to INR 780 crore, and the dividend payout recommended for the year by the board is close to 25% of FY 2024 PAT. If I move to... I'm on slide 3, moving to slide 4 for those of you who are on the web link. The highlights of the year. It was a very important year. It's 2 years since we listed.
It's our fifth consecutive year of 20% PAT growth, while maintaining very high return ratios. Our ROCE in this year expanded at 27, 27.4%. It was also important year for us where we transitioned in ownership, and we have now become one of very few unique companies in India with 100% publicly owned. Now, this is something which has happened, I think, far out of any one of your expectations as investors and even out of my expectations. Hopefully this will take away one of the concerns you would have had about some potential overhang of the stock with the PE ownership. Our win ratios in this year, where we doubled our win rate with almost INR 1,850 crores of new order wins in our MS and technology business.
Two-thirds of this happened in the second half of the year, and we had alluded to delays in the order, the RFP process cycle, I think, but we saw a lot of them coming to close and getting awarded, and I think that provides us a good base of growth for the coming years. Our MS and T ech business contribution and revenue grew to almost 40% ahead of our guidance of for FY 2025. I think this was achieved in FY 2024 itself. Most importantly for us, as a team, I think it was an important incubational year. We did talk at our investor day in May 2023 about trying to incubate two new businesses. I think we made tremendous progress in understanding the landscape, the opportunity set, and what CMS can bring to the table, and therefore, we also have invested in talent.
Earlier in the year, we had a new CIO, Rajiv Bhatia, who joined us from a banking and a tech perspective. He had worked with Infosys, Axis Bank and, lastly at SWIFT as CIO. Towards the end of the financial year, we hired a senior president level, president-level officer. I think it's our first president-level hire in the company after a gap of 12 years. Puneet Bhirani comes to us with some exceptional experience across tech and operations in companies like Mphasis, BYJU'S and Ola, and, will lead our consolidated operations for CMS. Important as a team for us to talk about, I'm going to slide number 5, to talk about a longer term track record.
We do keep a focus on the quarter and the year, but I think if you think of it from a last three-year perspective, our numbers are very solid, whether in revenue or PAT or EBITDA growth and expansion on margin profile. As I'd like to remind some of you who may be new to our calls, our track record of growth and performance over our life cycle of a company being created in 2009 to 2024, over a 15-year period, our revenue growth has a CAGR of 17%, EBITDA CAGR of 19% and PAT CAGR of 21%. The last three years are substantially higher than that.
All of this is a result are important to us because I think we keep focusing on building a business which is more predictable, and therefore, our focus on generating and creating new service lines which can deliver annuity and recurring business is very important, and it helps us work hard to make sure that there are no negative surprises to our shareholders. In terms of when you think at, look at the bottom table, the past growth over the last 12 quarters, other than in Q4 FY 2022, I think each quarter had more than a 20% past growth year-on-year. The revenue profile will show you how we have scaled from a INR 37 crore revenue in Q1 FY 2022, as we grow close to INR 627 crores in Q4 FY 2024.
On slide number 7, I think this is important because as we continue to build different business lines, as we continue to build our platform, some things culturally and the value system-wise remain the same as CMS team. We look for business segments in which we can build market leadership, and they have a strong cash flow generation capacity, and so that we can continue to deliver high ROCs. That capital which we generate, we look to invest in growth, whether it's the same lines of business or new lines of new adjacencies. At the same time, paying a steadily increasing dividend to shareholders. With that, I'm going to pause and I'm going to, you know, we're going to dive deeper into little more flavor of the various businesses.
I'm going to invite my colleague, Anush, to take you through some of the key business highlights and developments.
Thank you, Rajiv. Good day to everybody on the call. In the previous two years, our cash logistics business has grown revenues by 20%. This was primarily driven by our ATM growth, increase in share, and compliance revenues. As we entered FY 2024, we exited a contract in our CIT business, which has impacted our full year growth by 2.5%-3%. However, since then, we've been able to regain that volume through the year and end the fiscal on a positive note. In our ATM cash business, we had a flat volume for the year in line with the broader market. As ATM deployments which were linked to RFP execution got delayed or deferred towards the end of the year, we instead focused our efforts on leveraging our network compliance to improve pricing and yield.
This, in turn, resulted in a revenue growth for the ATM business. As we now enter FY 2025, we see volume growth coming back, basis RFPs which have been awarded and rollouts which have commenced. We had very good traction in our overall business point addition and gained 13,000 points through the year. These were all attributable to retail cash management or the RCM business. This represents a 25% growth in points for RCM, and is a result of our efforts in FY 2024 to drive a very focused effort in expanding the market in the retail sector. I'm now on slide 10, and I would like to sort of use this to talk you through the broader opportunity and what is our approach here, as this is not something that we may have detailed in the past.
You see, the retail cash industry is today serving just about 150,000 business points. These are mostly being sourced by the banks basis their lending relationships. The overall opportunity here across organized retail, financial services, healthcare, and utilities, is more than 550,000 points, and this is growing at 8%-10% annual growth. We have invested in a sales organization to drive this in a fairly focused sector-by-sector approach. Now, in the case of banks, the decision maker is usually the business or operations team. In retail, when we talk to the senior leadership there, we usually engage with either the CFO or the treasury teams, and their challenges stem from being able to reconcile order sales to settlement cycles, having a store-specific MIS, and also figuring out what are the ways in which they can better handle in-store cash payments.
We have leveraged our strength in technology and built several automation solutions, which either get deployed in store or they get integrated via APIs with the retailers. This, in turn, creates a more sticky and resilient relationship for us over the middle outcome. As we move forward, we plan to integrate our AIoT remote monitoring and offer an end-to-end solution towards retail outsourcing. I will switch gears now, and on slide 11, and we'll talk through the managed service and tech solutions. We had a stellar Q4 with revenue growth of 56% and a solid 35% growth for the full year. In addition to that, we were also able to secure incremental order wins of INR 1,850 crores, most of which will get deployed in FY 2025, with revenues accruing over a 5-7-year timeframe.
In our remote monitoring business, we have crossed 25,000 sites, and this represents a 10x growth over the last 3 years. We are now developing our own integrated platform here, which will help in pitching for projects which are more complex and at the higher end of the technology curve. In slide 12, what you see are some broader trends of the overall ATM market. You see, ATMs in India have an average life cycle of 8-10 years. India today has about 250,000-260,000 ATMs as an installed base. So you could expect that every year there will be about 25,000-30,000 ATMs, which come up for replacement, in addition to a growth of about 3%-4% in the overall network.
Given the fact that we had a massive expansion of the ATM network in, way back in 2012, 2014, many of those are now due for replacement, and hence, the current refresh cycle. Increasingly, during the replacement, banks are wanting to outsource the entire ATM network management, which significantly increases the addressable market for companies like us. At CMS, we have had a 25% win rate of contracts in FY 2024, and you need to understand and see this in the context of us being a relatively new entrant to the sector, and we have a current market share, which is in the mid-teens. What helps us with our win rate is actually our vertically integrated platform, which not only reduces handoffs, but significantly improves uptimes and delivers a far superior quality of service and helps in better cost efficiencies.
Moving to slide 13, and, you know, when you look at it from a, what is the CMS enterprise sales strategy? It's actually quite simple. We just focus on two things. First, is to increase the number of offerings to our customers, and the second is to have a deeper penetration across key customers. We have gone from having only three services in the past to eight solutions right now. This portfolio approach has helped us with managing the cyclicality of any one business, and it helps us become a partner of choice for customers. Over the years, the success of our enterprise sales strategy is evident in how we've been able to grow our strategic accounts. That is, accounts which contribute more than INR 100 crores of revenues per year, which used to be only three in FY 2021 to eight in FY 2024. Yeah.
I think with that, I'll just take a pause and hand over back to Rajiv to talk about FY 25.
Thanks, Anush. I think this is an important slide to sort of communicate two things from our side. One, this hopefully gives you a view into the opportunity and how we think of the opportunity for us going ahead. And secondly, more importantly, I think it's important to understand... The slide helps you understand the value we bring to our customers and the trust- and to make them trust us so that they can do more with us. Of course, all of this is dependent on our focus and ability to execute very strongly each way, each year. The FY 2025 outlook, you know, before I give you the FY 2025 outlook, a quick reminder to those of you who may be newer to our calls, what are we finally chasing out here? What is the opportunity for CMS at a broad level?
I think we are sort of linking our future to four themes. Three themes are more... The formalization and consumption is really linked to a broader macro environment. As India grows, the GDP grows, GDP per capita increases, the GST-led reforms lead to more formalization, that creates its own interesting opportunity for CMS. At the industry level, this is a very clear driver towards more and more outsourcing of current lines of business. And then from a CMS perspective, I think when we think of our broadening our solution sets, as we are able to launch new solutions and succeed with them, that brings in alpha for growth. So if you drill down in cash logistics, I think Anush has already talked about the opportunity. The opportunity I want to point to is really, more mid-term.
I think from a next five-year perspective, we see the market is ripe for a broad play in currency chest outsourcing. This market has sort of India has got roughly about 4,000 currency chests. Less than 300 of them are outsourced to third-party companies. CMS does some of those. There is a lot of learning, and we feel that going forward with the technology refresh, upcoming technology refresh cycle in the way currency is processed by banks, there is an opportunity for this to become outsourced to large, high quality companies in the sector. Managed services, I think we have talked about. I think, here there is a very big opportunity in how ATMs will shift from being bank-owned to being owned on private sector CapEx. Our approach here is to be very conservative.
The transaction-linked ATM model is not somewhere we bet too much on. We prefer this outsourcing of ATMs and recyclers, where the banks are more open to doing this on a fixed cost basis, thereby reducing any potential risk in transactions in the coming decade. Our IoT business, AIoT business, and RMS has done extremely well in third year of operation. There is still a very large portion of ATMs and bank branches which have not yet deployed this type of a solution. The ones who have deployed this in the last, the 40% which have deployed this in the last, five years, six years, will come up for an upgrade and a refresh cycle. We are investing into building very strong AI and machine learning-based solutions, which will give us an edge over any other competitor.
More importantly, we talked about the fact that there is going to be an opportunity to go beyond BFSI. We are looking and we are tapping into the immediate adjacency of NBFCs and insurance, but we are also seeing a large opportunity potentially coming up in the broader public sector arena out here. M&A partnerships have been a very core part of our evolution as a company. We have done about 7 very programmatic small to medium-sized deals over the last 10 years. We have a very good partnership with a large global OEM on the ATM side. And we look to do that in the coming years. We have already identified areas of expansion through M&A and partnerships, which are listed here. And hopefully in FY 2025, we hope to make some progress in scaling some of these efforts.
From an immediate interest to you, FY 2025, we had a target of doubling our revenue from FY 2021. I'm on slide 16, which is basically sort of 2x growth, 18% type of CAGR. We have in the first three years overachieved on that. We are still guiding to the INR 2,500-INR 2,700 crore revenue range, though we feel reasonably confident to be in the upper end of that range. Important to also, you know, highlight a couple of things. The opportunity set where we are focused and where we have already got service lines. That presents a TAM opportunity of roughly INR 22,000 crore for the industry in FY 2027, thereby leaving enough for, enough headroom for us to grow in the coming decade.
The last three years have been, the growth for us has been led by the growth in both volume, market share, and pricing on the ATM cash side. The whole entry into managed services and BLA and our launch of the AIoT remote monitoring business. Where we sit today, and of course, this can change over time, but where we sit today and we think of what will drive the alpha in our growth, we think our retail cash solutions should grow at a substantially higher level than the rest of the business. Our AIoT business is poised to, for a scale-up and to double from the current levels in the coming three years. Our integrated managed services solution stack is building out very well, whether it's software, managed services, fixed-price contracts.
And then, if we are able to make headroom in some of the new identified business lines, I think all of them provide the potential for alpha generation and growth in the coming three years. With that, I'm going to sort of pause and, you know, get Achal back on the line.
Yeah, I think we can start the question now.
Thank you very much. We will 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 handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question. First question is from the line of Kunal Sharma from SP Capital Financing. Please go ahead.
Hi. Yeah, thank you for the opportunity and congrats for the good set of number-
Kunal, sorry to stop you. Can you speak through the handset?
Hello, I'm audible now?
Yes.
Yeah. So congrats for the good set of number. So wanted to ask on, if I'm not wrong, we have a ratio of 60/40%, right? 60% from the cash and 40% for the managed service business. So however, the growth and margin are quite strong on the managed service side. So can we expect going forward, the vice versa, like 40% from the cash and 60% from the managed service? If you could just highlight the same.
Well, I think, Kunal, you know, we were with the split was roughly 70/30 a few years ago. We guided towards getting to a 60/40 split by FY 2025. I think, we are seeing also our cash business grow very robustly. The margin profile of cash business is obviously much higher for me in MS. I don't see the reverse happening in the next two, three years because all our business lines are growing fairly, fairly strongly. Now, we were to have new service lines, which are not in the current stack today, and if they scale very well, then I think, obviously, the percentage contributions of both the MS and cash will be very different.
Okay. Okay, okay. So but still, there's a growth from the cash logistics still standing nearly 10%-11% as compared to the managed service. And even, even we can see over and across the globe that the UPI and all the transactions are keeping going up significantly. Like it was at, I think, few years ago, it was just 2% or 3%. Now, to this 10% and 11%, 10%-11% from the UPI side. So that is what we think wanted to...
So I think the cash business growth for us, you know, let's comment on our business, I think has grown at almost 20% for the last two years, or the last immediate prior year has grown at about 11%. If you look at some of the global strategics in the, you know, in, in Europe or US, I think they're all seeing 7%-9% or 10% growth in their cash logistics business. So if you have to take a forecast, we have always guided to our cash segment business growing at a 10%-13% over a mid-range, and our managed services business should grow higher. So I think, I don't think you'll see a dramatic shift in contributions to the overall business unless we have some new big businesses which enter our, our mix.
Okay. Okay. Okay, second question on, there's a huge opportunity in the Suru area. So how are we tapping this opportunity as far as the new ITMs and the managed service is concerned?
I think for CMS, there is. We have a fairly large network already established in the country. 60% plus of our network is already in rural. So as and when any new retail store in rural is coming up for cash outsourcing or an ATM is being set up or available for outsourcing, I think CMS is one of the prime contenders to be doing that work because of our deep network already there. And we continue to expand our network, but I think one of our, if you go to our platform slide, I think one of our biggest advantages and USPs is the depth of our network in the country.
Okay, fair enough. Okay, there's a slide number 7, where the CapEx during the FY 2024 has gone down drastically to INR 99 crore, and which resulted into high ROC. So what is the reason behind that? And, what is the outlook for the FY 2025 in the CapEx term?
So, you know, it's a very good question. We have guided as a team to CapEx or sort of our CapEx run rate need of about INR 200 crore per year. But we also tell people, given the nature of the order cycle, execution cycle, don't look at it year-on-year, look at it in chunks of three years. In the prior two years, I think we had a capital spend of roughly about INR 200 crore approximately. This year, because some of the project RFPs got delayed to second half and order placement cycle got referred to that, the CapEx has slipped into FY 2025. So FY 2025 CapEx will be higher because of the underspend in FY 2024.
Okay, understood, understood. And lastly, to just highlight on the CIC, what was the CIC during FY 2024? How was the industry trend in the cash circulation in India as compared to GDP?
I think the CIC, the CIC growth, which was reported recently, was about 7%-8%, if I'm not mistaken. CIC to GDP ratio, I think, is 12%-13%, somewhere in that ratio.
Thank you. Kunal, I'll request to come back for a follow-up question. Requesting all the participants, kindly restrict to two questions per participant, so the management can address all the questions in the queue. Next question is from the line of Prakhar Sharma from Jefferies India. Please go ahead.
Thank you. Hi, Rajiv, and the team. Congratulations, great numbers, and good to see, you know, some good times lining up. Just a couple of things. Rajiv, you know, it's good to see the order book, you know, seeing a very strong growth, between last year and this year. Could you help us just get a broader sense whether the order book has, broadly, let's say, as you were saying just before this, a higher capital intensity? And if that is true, then how should we look at, like, is margins, EBITDA margins, the right way to look at it, or we should look at operating margins? That is question number one.
What is the second one? Maybe I can give you a shorter answer.
Okay. The second one is basically how do I, you know, how do we look at the market share gains in the ATM, you know, rollouts? You know, you used to have, like, 44, 45% market share at the time of IPO. So I just wanted to get a broader sense of how is your incremental or market share in the incremental rollouts or, you know, even refreshes looking like? These are the two questions. Thank you.
Okay. I think the first question is a great question, Prakesh. I really appreciate it. The way I would like all of you to sort of think about and the way we think about it is, we sort of look at our ROC trends. You know, the capital we generate, we are, you know, high cash flow generating company. We feel that we have the capability to deploy the capital for getting better and better returns for our shareholders. And that's where we see, we, you know, we talk about ROC numbers. From an order book perspective, I would say maybe two-thirds of that will need some capital deployment. Obviously, the ratios will be different, payback periods will be different, project to project.
The one which I have, I've sort of sensed where people get a little uncomfortable in the analyst community, is really linked around the transaction-linked BLA business. I think our returns there have been very good and very solid because we have been very picky. We don't do more than... I think our total install base of transaction-linked ground-level ATMs will not be even 5,000 ATMs. So maybe be less, less than that, 3,500 ATMs or something. That's it. So we are, we have position-sized this business, where we can do it only if there's a high capital return. If I had to think of the order book for the last year, I think less than one-fourth of that would be linked to this nature of business. Your second question is around in market share of ATM cash.
I think the ATM cash market share was pre-IPO. I don't remember. I think it was 43-44%. And now, in the last four years, this number I know has gone from 39%-49%. I don't exactly have each in terms of percentage of new deployments or new wins, but I know the market share gain has been 10% over the last four years. And in this year, it would have increased nominally, because this year was more of a flattish year because the orders have got issued in whatever, December, January, February, March. The rollouts are starting to happen. But you know, I would like to extend your question to give a broader answer to the folks on the call.
As a team, we have said that it is our duty to focus on market share, revenue growth, margin profile. Sometimes, most times in that order, right? That's the way we think. We are very focused on maintaining and increasing our market share across all our lines of business. All of that, obviously, doesn't happen every quarter, every year, but I think that's where our North Star is. So, needless to say, I mean, when any new order is being placed, I think we are working hard to make sure we maintain our market shares.
Thank you, Rajiv. Just to reconfirm, you know, I think your number of 44% around the time of IPO was correct. So would it... Did, were you saying that 44 has gone towards, like, 49 or something like that?
That's right. That's right.
Perfect. That's perfect. Thank you so much. First of all.
Thank you. Participants, kindly restrict to two questions per participant. Next question is from the line of Abhishek Sinha from Bodh Capital. Please go ahead.
Congratulations, team, on the good set of numbers. My question is around the increased receivables. I think as percentage of sales, it has gone up to 32% in FY 2024 versus 27% in FY 2023. You know, could you please throw some light on why this has happened, or is this going to subside soon?
Yeah. Pankaj.
So it's Pankaj. Our AR is largely dependent on last quarter's gross revenue. Gross revenue means inclusive of GST. If you will see a DSO based on that, March 2024, DSO comes to around 87 days, which is improved from September, which was 95 days, and slightly increased from March 2023, which was around 80 days. So minor increase is due to increased ratio of the managed services and cash business, where the customers are largely PSU banks, and the payment cycle is around 10-15 days longer. So that is the reason the AR has slightly increased from, DSO has slightly increased from 80-87 days.
All right. Thanks, thanks for the answer. The second question is on slide number 10. I wanted to understand basically this Retail 360 solution that we have built. A, is this built fully in-house? And second, isn't this space already intensely, you know, very competitive? And, you know, what is our outlook on this one?
So, Anush here. So, I mean, as with most things that we do in CMS, we take pride in, you know, using our tech core technology skills to be able to craft solutions to the needs of the customers. I think perhaps the misnomer here is when we talk about payment automation, you may be comparing us with pure play payment companies who are more focused on the digital payment side. What is of context to us and in our parlance, we're talking of cash payment automation.
In fact, I think that is a space which is offering itself as a very interesting opportunity for us to be able to see how do we blend our reach, our quality of service, and bring on board a lot of technology automation to make a cash payment equivalent to a digital payment in the eyes of a retailer, the ease, the efficiency, the reconciliation, and the fungibility.
All right, understood. Thank you.
Thank you. Next question is on the line of Pranay Jain from DealW ealth Capital. Please go ahead.
Hi, am I audible?
Yes, you are.
Yeah. So I wanted to understand on the cash logistics business, do we see where things are now moving, growth can be in line with our company average? Because we've been expanding pretty well on the business points network. And while our focus has been on ATM pricing and yield improvement, anything you can share on the end over here?
Sorry, could you just repeat the last part of the question? Though, your voice wasn't very audible.
What is the kind of improvement we expect in ATM pricing and yield over the next 12-18 months, along with the growth on the cash logistics business as we continue to expand our business points network?
I think Anush can answer that, but, overall, I think we've already sort of mentioned this in the deck, that we look at our cash logistics business, the way it is today, which is ATM cash logistics, retail cash logistics, and, cash in transit, to grow in the midterm over the next three to five years at a 10%-13% rate. This may go up a little bit if new lines of business like currency check outsourcing come in, or if we see a higher number of bank-owned ATMs getting outsourced or getting faster outsourced to cash management. I don't think there is. It's possible to give you a specific of what the yield and pricing will look like w e only talk about the past, what we have done, and then we hope the future will be in line in the direction we understand the business.
So are we taking any new measures for improving the ATM pricing or yield, or we are quite satisfied with where we are at present?
I think, this would be improper for me to comment on a broad call like this. I think that is, I will try and re-summarize the what we said. As a company and a team, our focus is first on market share, next on revenue growth, third on margins. We try and balance all of these three objectives every quarter, every year. But, you know, if you are to pick in two, we focus on market share. We can't predict competitive intensity in the future, basis. Where we are today, I think we've had a good track record of growing this business at double digits, throughout its history, and we hope to do that in the coming years.
All right. My second question is, is it possible to share an outlook on the order book and order win momentum? Because we haven't seen very good progress in increasing the wallet share. So just wanted to get a sense, what could be the order win run rate, as in, is-
[audio distortion]
Do we look for more room in margins? Or again, given the competitive intensity, we expect margins to be where they are.
Let me take a step back and sort of take some pride in what this team does. I think our margin profile is world-class. You know, I think they are very solid, much higher than most companies you can track anywhere in the world. I don't want to set expectations of constant margin improvement. I don't think that's something which is reasonable to expect. When you think of from an order win perspective, last year we had, last year, we... Sorry, FY 2023, we had about 900 closed order wins. This year we've had about 1,850. Impossible to forecast the number for the year because there are so many factors, type of contracts that come from bidding, how people bid. Very, we can't predict how people in the market will do.
We will, you know, try and maintain a healthy order win ratio to make sure we are continuing to build a healthy line of business in line with our growth aspirations.
All right. And, anything on the M&A opportunities we think we can close in the next couple of quarters, or they're still far out That's my last question.
I think you're trying to predict when a deal will close is a month's game. I would really not know.
No, the inorganic kicker I was asking, if we see any inorganic kicker or, not really?
No, we are working on opportunities. We have been working on opportunities. I can't forecast the time of closure, but we are working on inorganic opportunities fairly intensely.
All right. I'll wish you all the best. Thank you.
Thank you.
Thank you very much. Next question is from the line of Divyanshu Mahavar from Dalal & Broacha Stock Broking . Please go ahead.
Hello, I'm audible?
Sir, you're sounding a little distant. Can you come a little closer towards your device?
Hello, I'm audible now?
Sir, it's sounding a little distant.
I will join afterwards.
Sure. Next question is from the line of Lakshminarayan from Tunga Investments. Please, go ahead.
A couple of questions. So if I look at the ATM population in India, the last five years it has been growing at around 1.5%, roughly. With on-site growing at 3.5%, and the offsite is declining 1%. Now, given this, how do you ensure growth in this particular market for us? Because you talked about refurbishment, et cetera. In the next couple of years, how do you expect growth there, given this? Or are we growing more in the on-site and less in off-site?
Hi, Anuj here. I think you should look at this as, as different parts of the value chain. Let me first tackle it on the ATM cash business. One way to try and model for a sense of what the future could look like, over a mid to long-term horizon, is to think about what should be the overall base growth of the overall network. Which just based on demand, supply, how transactions are growing, what is the need for incremental ATMs in the country, should be in a 3%-4% range overall.
That, along with what could create incremental demand for us in terms of switch from what the banks are doing themselves to outsourcing, which is the 80,000-100,000 ATMs, which Rajiv referred to earlier, which is not currently outsourced for CIT, creates another 3%-4%, growth potential. That, combined with, further yield and pricing, creates a, a sort of double-digit growth opportunity for us in a 10%-12% range. Coming to the managed service... Sorry.
No, go ahead.
That's about the ATM cash business. I think coming to the managed service parts of the business, that is sort of where I think the combination of replacement, refresh cycle, as well as new purchases are critical. Like I said, you know, on an average, an ATM life cycle is about 8-10 years, so one could anticipate that on an annual basis. Now, it doesn't happen perfectly every year, but there will only be some lumping together of RFPs and contracts, you know, bank CapEx or CapEx by private players. But that, in a, in a longer term horizon, should create a 20,000-25,000 annual, require, ATM replacement cycle.
The key thing is here to think about that what are some of the larger external macro drivers which will spur either the growth of ATMs or incremental investment into the sector? And the largest one is obviously a change in a switch on the interchange. Interchange really sort of for us, I mean, acts as an overall revenue. It helps increase overall revenue share for the industry. It helps, you know, first and foremost, white label participants increase their investments in the sector, followed by private sector banks and then public sector banks.
Got it. What is the interchange within bank sector?
So interchange is, you know, to put it very specifically, is the fee that one bank pays another bank when their cardholders-
Okay.
-transaction with the bank. So that, that's what it is. So, for offer transactions.
Got it. In terms of the trade receivable, write-offs and impairment allowance of bad and doubtful assets, how is it panned out for this year, and have you taken any increase in provisions?
I'll hand it over to Pankaj for the answer.
So provision for impairment and bad debts has reduced from 5% last year to 4%. And, as we guided earlier also, that, because of the mix change in the, from cash to MS and Tech, as well as more compliance, cassette swap, timely reconciliation by banks and use of the technology has helped us to reducing that, impairment and the bad debts reduced from 5% to 4%.
Got it. In terms of absolute amount, what is it, sir?
It was INR 98 crore last year, and these are INR 90 crore.
Got it. The third question is that, if I just look at the retail cash, right? So, what I understand from talking to some of the top private sector banks is that they are not adding any touch points. They are not providing this as a service to more of their clients, and because it's a cost center, which they want to progressively reduce. However, from our side, we have seen an increase in the touchpoints. So just want to understand what, where, I mean, how is it taking place? Because, individually, these banks are reducing their, the service they are giving to their large clients. Or is it coming from e-commerce for you?
I think there's no to take a slightly longer term dive into the last eight years of what has happened to retail and more importantly, organized retail, you'll see there's been a fair bit of churn and, you know, choppy waters for them. Starting with, demonetization, implement of GS- implementation of GST, the, onset of COVID, and, from a physical or organized retail perspective, they also had to deal with the uncertainties around what happens to, you know, e-commerce, e-commerce growth, to what extent, does it impact their business?
I think it's only in the last 2-3 years that a fair degree of clarity has certainly has emerged, and we've seen organized retail invest for growth significantly and aggressively. That has given us the confidence to create our own organizational bandwidth and capabilities to engage with retail directly. Earlier, we preferred to sort of engage with and through a bank. So when I sort of, you know, shared with you our detailed approach to how we're thinking of retail, you're absolutely right. I think the banks have a certain point of view, but I think as you, I reiterated earlier, our goal here is to find a way in which we can be a collaborative partner to retail and to banks, bringing on board our solution set and our technology, to just help with easing the whole, payment cycle.
Got it. So you're pushing from the retail, I mean, you're the person who would pay you will be the retail and not the bank?
I think there's a broader market. See, our banks are focused on a particular set of customers with basis the reach, basis the amount of currency passing through and whatnot, for where it makes sense for a bank to engage. There is a much broader market which a bank may not be wanting to or willing to serve, which is the opportunity which we think. When Anuj talked about the 5.5, you know, lakh points out there, it's a much broader market that will need partnerships with banks, fintechs, and, with payment banks, which is the approach we are taking in being able to address the needs of that segment better.
Right. Thank you so much.
Thank you. Participants, kindly restrict to two questions per participant. Next question is from the line of Divyanshu Mahawar from Dalal & Broacha Stock Broking. Please go ahead.
Hello. Good afternoon, sir. Thanks for the opportunity. I have a couple of questions. The first question is: How AIoT remote monitoring solution will help NBFCs insurance and public sector? And the second question is, for FY 2027, the TAM is INR 22,000 crore approximate market size. So what kind of market share you are thinking about it?
So, on your second question, I think, you know, we have sort of alluded to an aspiration for FY 2027. Give us some time when we do the detailed analyst day to talk about our FY 2025... FY 2027 targets, especially right now, very focused on making sure that FY 2025 gets achieved. In terms of the remote monitoring sector, there is, so there are very different technology type trends which are going out there. The entire monitoring space, the security space, we are in banking, I think we sort of understand very well. In banking, we are seeing a big move from disparate solutions at ATMs and branches, moving to more of a converged solution. In retail, we are seeing a lot of analytics being on offer.
In the public sector, there is a very large. I wouldn't say opportunity. There's a large public sector deployments of CapEx into new infrastructure, whether that is smart cities, whether that is railways, and I think all of that is coming along with a strong component of, remote monitoring solution need, to run the infrastructure in a safer and more efficient manner, including if you think about the entire electric, vehicle recharging, opportunity. There are solution sets being created in telecom. We are seeing solution needs around telecom towers. So I think our team is, as I said, we will first and foremost focus on BFSI. That's the sector where we have the network and reach and customer trust, and we don't want to lose that opportunity. I think we are executing well on that area.
But we are also, like in the retail side, in cash, we invested in building up a pretty strong sales team. We are right now building a strong sales team in remote monitoring to be able to cater to these type of solutions. These solution sets are deployed, and they run and maintain over a long period of time, but they're also very complex solutions, right? Some of this capability we already have built, some of the capability we'll partner, and some of that we'll have to build in the coming years.
One last question. I just wanted to know that, on a purchase, if you look at in, P&L side, on a purchase, credit could have been increased so much. Can you put some light on it?
Yeah. Pankaj will help you with that.
Yeah. So, during this period, our sale for the ATM has increased from INR 57 crore in FY 2023 to INR 140 crore rupees in the FY 2024. Earlier this year, earlier it was around 6% of the revenue, and this year around 11% of revenue is coming from the ATM sale. So that is the reason the, the, cost of the goods or if you have to match with the inventory, changes, has improved.
Okay. Thank you.
Thank you very much. Next question is from the line of Neel from Value quest Investment Advisors. Please go ahead.
Yeah. Thank you for the opportunity. So, my first question is around margins. So if you just look at the margins for both the segments, the cash management and managed services, over the past three, four quarters consistently, the margins have been coming down. So for managed services, of course, this is, product, so mix increasing product is affecting us. But what will be the reason other than that, for the impact on margins? And going forward, how should we be, looking at the margin level, in coming quarters?
So, I think two things we'll point to. One is, look at margins on a full year basis, not just every quarter. I mean, there are different changes which happen. However, I think when you think of specifically the cash logistics business and the second half of the year, that's the part of the year where we had to ramp up, and we were able to ramp up our investments for some of the new businesses in specialized logistics and collection services, so the cost of that is currently housed within the cash view. So if you in fact, I mean, it's a good point you made. I don't know if I mentioned this in my overall remarks when I presented.
If you would actually, our PAT margin this year of 23% is after taking almost an INR 8 crore-INR 10 crore incremental expense and operating costs for incubating new businesses. And all of that is housed currently in our cash view.
Okay, got it. So now going forward in the next 2025 or 2026, we can expect this margin to be stable at this level?
Well, you know, I think this is something, you know, we have said this during IPO and every time we interact with customers. I think as a team, we retain the rights to invest some of our earnings back into incubating new businesses. We are not a team which is sort of comfortable going and buying into new sectors unless we understand the sector very well. So some of this cost, operating cost increase, is a reinvestment into the business for us to look at expanding. I cannot tell you right now how much will this number be, that INR 8-10 crore will be in the coming year.
But of course, we look at trying to make sure that we don't have, while we are investing in new businesses, we, they are not doing, we are not doing so at any high loss. I think the loss number should be manageable in the overall P&L we deliver.
Okay, got it. And my second question is around network compliance. So what level have we reached with respect to that? And do we expect any kind of benefit, cost benefit coming in as we go up that with that percentage?
I think, you know, as we had guided to earlier, we're looking to complete our investments in achieving a compliant network in FY 2024 to a level of about 85%, which we have achieved. However, as through the year, we've focused our attention on the ATM cash business to improve yields and pricing. We now feel confident of maybe inching that up even further, closer to a 90%, 90% rate.
Okay, so, now going forward, no major benefit we can expect, because mostly compliance has been fulfilled from our end?
I think, you know, we will have the benefit of looking at our numbers and data over a four-year period. But, you know, as a team, which has been here for about 10, 15 years, I think we take a lot of internal pride in sort of crafting ways in which we deliver, continue to deliver productivity and efficiency gains. Ultimately, we are a very strong operating leverage-oriented business, especially on our logistics and network business. So there is always various initiatives and efforts to keep taking out that little bit of extra efficiency, whether we get it from, you know, incremental business, or we get it from infusing technology to what we do, or it just comes from managing our operating processes more efficiently.
The part where I think we will, we will continue to upgrade is really on the cassette swap. In FY 2024, we achieved about 20% cassette swap coverage. As, you know, going back to some of our earlier updates, we had said that cassette swap is today being, the whole project is under the RBI regulation. It's sort of being driven by the Indian Bank Association, to ensure that we drive this on a consistent and homogeneous basis. 30 cities in India were earmarked for the first phase of expansion. Given that project or that phase of that 30 cities will almost complete by end of June, after which we expect an expansion to a further set of 30-45 cities. So I think that, that effort is on, will continue to play out.
Okay, thank you.
Thank you. Participants, kindly restrict to two questions per participant. Ladies and gentlemen, we will now take the questions from the chat box. The first question is from the line of Akash Oza from CCIL: What is the payment card business under MS and IT? If you can give a brief on that.
The payment card business is one of our oldest business lines, where we work with leading private sector banks and some public sector banks. When they are issuing financial cards, a debit card or credit card to a customer, it's a managed service-like business, in which everything from the card sourcing, personalization, the data security and encryption is all done in a very high-end secured facility, which is audited and which is vetted by RuPay, Visa, Mastercard. There are three or four key players in the sector, and also NPCI audits these facilities. So I think there are three, four players in the sector, where CMS is one of the high-quality players there.
And we work with, as I said, with large banks in issuing these cards to their consumers, when they have new consumers or when there is a replacement.
Thank you very much. The next question is from Avinash Patra, individual investor. How are the new business lines shaping up? What is the competitive landscape and potential in these new business lines? Thank you.
So, let's talk about the debt collection business. The debt collection business, I think, needs, as we even have seen from regulatory intervention, I think there is a need for high-quality players who are providing end-to-end services. We have launched these services and piloted them with leading NBFCs. There is a lot of interest in the customer sets to have a company of CMS's repute to be able to provide these solutions to them... whether we can successfully launch this and scale it and make money, as time will tell. But, we think this is a humongous, large opportunity out there.
It's obviously a challenging opportunity, but we will take a strong stab at it in the coming years to see if we can become, like we became the leader in cash logistics, if we can become the leader in an integrated, you know, collections tech, collections call center and collections field integrated company as a choice partner to banks and NBFCs. The specialized logistics, our focus is currently fairly narrow on the bullion space. Over time, it can move into other high-value logistics. There are largely, I think, it's a very large, unorganized sector, but as the sector moves to formalization, right? You look at jewelry stores and all move from unorganized to formalized as you see large jewelry chains increase their footprint in the country.
We think there is an opportunity for a good third player in the sector. We're already doing this work for the last year and a half. We hope to, you know, grow this. Obviously, it's a very small base right now, but we are again seeing a lot of traction in customers wanting a high-quality player as an alternative there.
Thank you very much. We'll move on to the audio questions. Participants, kindly restrict to two questions, and kindly join the queue for a follow-up. The next question is from the line of Franklin Moraes from Equentis Wealth Advisory. Please go ahead.
Yeah, thanks for taking my question. I just wanted to know what is the ESOP trajectory, going forward?
You mean ESOP costs?
Yes.
Got you. Yeah.
This quarter, the ESOP cost was around INR 10 crore. Just to remind you that the ESOP, whatever we have issued, either it was issued on the weighted average fair market value or maximum 10% of the discount. Around 75% of the ESOP issued during last year was issued on a weighted average price and 25% on a 10% discount.
I think that's just our way of telling any shareholder that ESOP issuance to employees is very closely aligned to our public shareholders.
The cost, last year cost, the this quarter cost was around INR 10 crore. Going forward, as we guided you earlier also, the cost will be in the next two quarters, the cost will be around INR 10 crore, and after that it will gradually reduce to INR 6 crore, INR 4 crore and INR 3 crore.
Okay, this would be the quarterly run rate, right? What you mentioned.
Yes.
Yeah, this is on the current set of ESOPs issued, right? If the NRC at any point issues any new ESOPs, which are already approved by shareholders, they will be coming back to that, which is difficult to predict right now.
Cool. Cool. Thanks a lot.
Thank you. Next question is from the line of Pradeep Rawat from Yogya Capital. Please go ahead.
Yeah, good afternoon, and thank you for the opportunity. So my first question is regarding our cash logistics business. As you have mentioned in the presentation, our cash logistics business has grown 17% CAGR from FY 2021 to FY 2024, and the market growth outlook is for 19% CAGR from FY 2021 and FY 2027. So I just want to know why are we underperforming the market?
Just give us a second while we move to that slide to have a look at it. Okay. So we, I don't know if you can see the slide. We have the TAM slide out there from FY 2021 to FY 2027. I think this is, you know, our FY 2021 to 2024 number is 17% roughly. If the longer term forecast opportunity here is on that, we will have to see how the ATM growth numbers pan out. This predicts... This is predicated basis some ATM market growth, which has lagged right now. If that picks up and outsourcing increases, then this number is, you know, then you're, you're, it's a fair question. But as of now, I think we track basis our market share in the sector. Our market share in, in our, both our ATM business has gone up.
Retail, we have gained market share last year. CIT is the only business where we have been sort of flat.
Okay, understood. And next fact, second question is regarding the operating margin. Our operating margin was used to be 17% and 18% in pre-COVID times, and now our margins are north of 25%. So what led to this margin expansion? And what levels of margin should we look forward in the coming years? Any ballpark number would be fine or a range.
So, you know, we have, we have not given any margin guidances at all, ever. We focus only on a revenue growth aspiration. The margins have expanded for multiple reasons. I think, you know, and a low density business as the business points you cover is linked to obviously pricing growth. It's linked to mix change, where we talked about yields, where we are focusing more sometimes, in a particular year, on higher yield businesses. And it's been a good, strong, robust margin increase. And lastly, also just using a lot of technology to automate our back-end and back office functions. What is the mix of margins to predict for the future? Impossible to know. We don't control the costs. We don't know what happens to fuel price, wage prices, competitive pressures.
I think, like I said, we will be focused on market share and revenue growth. If they work well, I think the margin profile will remain very strong.
Okay. Okay. Thank you, and all the best for your future endeavors. Thank you.
Thank you.
Thank you. Next question is from the line of Yash Rachh from Exponential Research. Please go ahead. Yash, may I request you unmute your line and go with your question, please? Yash, may I request you unmute your line and go with the question, please?
Hello. Yeah. Am I audible?
Yes, now you are.
Yeah, sure. Thanks. My question is around central bank digital currency. So earlier, this month, RBI, you know... So basically, there was an article in ET, in which, RBI told that they were working towards, CBDC, and, CBDC is going to be, you know, there will be a component of anonymity, it will be non-interest bearing, and, they're also working on the offline mode to leverage the UPI infrastructure. So, Rajiv, you had previously alluded that, these, CBDC is more relevant for the corporates, especially for the cross-border transactions. But now that, they are working on this offline mode and, you know, and they said that it would be non-interest bearing, is, is there a change in that view, or, is, is that the same? Just wanted to get a sense, for that.
No, it's impossible for anybody to predict what regulatory action can sort of drive in the coming years. I do still believe that CBDC functionality or is very similar to what other modes of UPI offer. However, what the central bank has talked about in terms of making CBDC not trackable and all of that, I think that could provide that would present a threat to other digital form of payments more than cash. I mean, that's my belief. I could be right or wrong, I don't know. There's also something which we haven't really seen pick up anywhere in the world yet, and therefore, very difficult to sort of gauge how this will pan out. Easy to sort of look at experiments in other parts of the world and think, "This worked, and that didn't work." We'll just see how this pans out.
Understood. Thanks.
Thank you very much. Ladies and gentlemen, we will take that as the last question. I now hand the conference over to Mr. Rajiv Kaul for closing comments.
Well, thank you so much for attending our call. Thank you for the insightful questions. I hope you liked the format of this call, where we were able to sort of give you a deeper dive. As we had promised, end of the year is when we'll be able to share more data points, operating metrics, financial metrics with you. Thank you for your support as, you know, as analysts and shareholders of CMS. I hope you're happy with our performance, and we hope for your best wishes for the coming year.
Thank you very much. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.