Q1 22/23

Jul 28, 2022

Quarterly report

Ladies and gentlemen, good day and welcome to the Q1 FY 2023 earnings conference call of CMS Info Systems 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 the 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. Dhiral Shah from PhillipCapital. Thank you, and over to you, sir. Thank you, Jacob. Good afternoon, all. Thank you for joining us on the Q1 FY 2023 post-earning conference call of CMS Info Systems Limited. First of all, hearty congratulations to the management for the great set of Q1 numbers. We sincerely thank the management to allow us to host the call. In the panel today, we have Mr. Rajiv Kaul, Executive Vice Chairman, Whole Time Director, and CEO of the company; Mr. Pankaj Khandelwal, President and CFO of the company; Mr. Anush Raghavan, President of Cash Management; and Mr. Manjunath Rao, President of Managed Service. I now invite Mr. Rajiv Kaul to begin the proceeding of the call. Thank you, and over to you, sir. Thank you, Dheeraj. Good evening, everybody. I hope you can hear me clearly. Thanks for attending our Q1 call. Before I dive into our performance, I want to share a couple of high-level sectoral macro trends, which are quite positive towards cash usage. Usually, Q1 is a softer quarter after a strong Q4 in the financial year, as we notice. This year, Q1 over Q4, on a quarter-on-quarter basis, the cash in circulation has grown at 2.5%. Even when we look at the data on the monthly cash withdrawals in the ATM channel, that's grown at a 6% quarter-on-quarter levels. I think that's very good, healthy, macro-level data I thought I'd leave for you to digest. Now let me just dive into the company. I'm very happy to say that we've been able to continue our momentum over the past year. Despite a fairly inflationary environment, we have still had our best and strongest quarter to date on all important metrics of revenue, EBITDA, and PAT. On a year-on-year basis, our revenue has grown by 23% to INR 453 crores. Specifically, our annuity revenue stream, which is something which you should pay attention to and track us on, has grown at a 38% year-on-year level. Our PAT has grown at 47%, which is a reflection of both the volume increase of our business and activities we do, the operating leverage in the business of our logistics- We have lost the line for the management. Please hold while we reconnect them. Ladies and gentlemen, we have the line for management reconnected. Thank you, and over to you, sir. Well, I am sorry for the disconnection on the line. I will just repeat the last line, hopefully, where I got disconnected. I want to explain that the result is, I want to commend our team for very strong execution, focus on very high-quality service to our clients, and our operating performance has been robust across all our business lines and product units. It is all-around good quality performance from across the team. The one thing I want to highlight here specifically is our youngest, and let us say, the smallest business, which is our remote monitoring business, which we started in COVID, is doing very well. You will remember that we have talked about an order book of 25,000 ATM sites. We have gone live on 15,000 of that. So we have executed 60% of the contracts already. This is a tough one because the supply chain issues of components here is quite a tough challenge to circumvent. But more importantly, we have been able to, in a very quick time, take our solution capability beyond ATMs, and we have already had very good proof points in the BFSI sector and started winning orders with our solutions for bank branches, bank vaults, and even gold loan vaults. And we have got some very good client names and references where we have run the work and we are starting to execute that now. I am going to now request our CFO, Pankaj, to take us through the high-level financial highlights. Thank you, Rajiv, and good evening everyone. I will take you through the financial performance for the quarter. Revenue from the operation stood at INR 453 crores, which grew by 23% on year-on-year basis. The net profit was INR 69 crores, which grew by 47% on year-on-year basis. PAT margin has expanded to 15.2% by 250 basis points between Q1 FY 2021/2022 and FY 2023. Our strong performance is on account of increase in volume of the cash activities and increased mix of the tech services. Talking about the segmental results, our both major business segment recorded very strong growth. Cash management business recorded year-on-year revenue growth of 29% to INR 313 crores and EBIT growth of 44% to INR 77 crores. Managed services business recorded year-on-year revenue growth of 16% to INR 146 crores and EBIT growth of 53% to INR 30 crores. In our managed services business, if you remove the product sale component, the services grew year-on-year by 71%. With this, I now hand over the call to Mr. Anush Raghavan, President, Cash Management, for more insight into cash management business performance. Thank you, Pankaj, and good evening to everybody on this call. First of all, I am pleased to share that all our three business lines across the cash vertical, namely the ATM cash management, retail cash, and the currency-in-transit businesses, have all demonstrated very strong growth. Overall, from a macro perspective, we continue to see very strong trends across cash usage in India. Across the India's ATM network, we have seen a 6% increase over the last quarter in terms of the total currency dispensed. The total currency, which was handled by the CMS team, grew by 38% year-on-year and has been the highest ever in the history of the company. We continue to invest to expand our reach and presence, and as of date, we cover more than 16,000 PIN codes across India. On today's call, let me also take the opportunity to share some more details to you in terms of what we are doing on the retail business. We have seen strong traction in sectors which were hitherto affected with the COVID headwinds. Mainly organized retail, travel, hospitality, and entertainment have seen some very interesting trends in terms of bounce back post-COVID. Here, our cash volumes are up by 22% on a year-on-year basis. Further, on the back of this recovery, and given the broader opportunity in the retail landscape, we have been investing to create an end-to-end offering, which brings together many different parts of the CMS solution set, from our product automation to remote monitoring and cash management. To the retail segment, we offer an automation-based solution which takes care of their reconciliation, cash management, and treasury processes. We have seen very good traction over the last few months and have today built up an order book from customers across fuel outlets, large organized retail players, NBFCs, and airlines. Going forward, we will keep you updated as this business develops. I will now request my colleague, Manjunath, to share with you an update on the managed services. Thank you, Anush. Good evening, everybody. On the managed services business, I am very pleased to inform you that we have successfully completed execution of our SBI DLA order book ahead of time and are seeing very healthy transaction trends on the same. Our DLA estate has crossed now 5,500 units as of June 2022. Our remote monitoring SaaS business is growing rapidly with 15,000 ATM sites live, and we have further expanded our remote monitoring SaaS solution capability to new areas like branches, vaults, and have won contracts with leading private banks and gold loan companies covering close to 1,000 branches. For our managed services business and SaaS business, we have set up a new state-of-the-art tech center that is CERT-In certified and has a three times capacity of the old center. I'm also happy to announce that we have received ISO 9001:2015 quality certificate for application and software development for banks and financial institutions. With this, I will hand this over to Rajiv to do his closing comments. Okay. I don't have really much to say. I think our focus remains on executing strongly and continuing the momentum. Before listing and during our earlier calls, we've sort of given a guidance saying that our company revenue FY 2021 was roughly INR 1,300 crores. Our goal remains to double that to roughly INR 2,500 crores to INR 2,700 crores by FY 2025. We are on track to hit those numbers. We started FY 2022 well. FY 2023 has also started off well. With your good wishes and luck, hopefully we'll get to that number soon. In addition, I think this is an important year. It's an early stage right now, but I still in disclosure just want to share that as part of our efforts to look for newer revenue streams to grow in the country, and this is really keeping an eye on FY 2025 to FY 2030, we are also kick-starting incubating efforts beyond our businesses of cash management and managed services. These are mostly going to be efforts initially which will be done ground up within the firm. As we learn and see what sticks and what works, we will then look at how we can scale these businesses. Very early days, but that's an area where we have already shared that we'll start investing our time, effort Management time, effort, and resources. FY 2023, I think maybe by the time we have an analyst meeting, we'll be able to give you a little better update on how these efforts are going to look like. Thank you so much. I'll be happy to take any questions 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 your 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. The first question is from the line of Asim Wade from DAM Capital Advisors Limited. Please go ahead, sir. Yeah. Hi, everyone. Good results, and congratulations to CMS team. I had a couple of questions. So first one on the cash management business. Can you break out that how much of the growth is through new touchpoints and how much would be just pure compliance-driven pricing-led growth? Asim, that number, I do not think it is relevant to track on a quarterly basis. I think it is more useful to see on a year-on-year basis because it will move up and down. I think we would have given last year, when we did the numbers, we talked about an equal split between volume, which is business points, and pricing impact. It was almost an equal split in the numbers at the revenue line. And I think at the profit line also, I think between operation leverage, I think we had explained that in the last call. Right now in Q1, this would not be the right way to sort of track that number. We will wait for at least six, nine months to give you a sense of the breakup. Okay, but for FY 2023 as a whole, basically we can still assume that 50% of the expected growth should come from unit additions, right? If I got you correctly. I think We are still on track then. I will tell you what we remember on compliance, what we have indicated. Compliance, we have said a couple of things before, which is we expect compliances to finish by FY 2024. At the end of FY 2022, roughly 35% of our points were compliant in terms of earning compliance revenues. That should hopefully get to 60%-65% by FY 2023 and 100% by FY 2024. We have indicated towards an 18% growth rate CAGR over these years in our business, and I think we are on track for that right now. For the sake of your question, I would think it is wise to maybe take a 50-50 split between volume and compliance or other pricing initiatives. It is just our compliance, right? There is inflation price and whatnot. Pricing and volume, I think you should take a 50-50 sort of a mix. Sure. Got that. Secondly, just another clarification. I think in your opening remark you mentioned about annuity revenue has grown 38% YOY, while Pankaj mentioned that excluding products, MS revenue grew 71%. The annuity portion that you talked about, that does not include BLA and remote monitoring, right? No. So annuity for me, I was talking at a company level, which is both cash management and managed services are all of our businesses. Okay. I think as Pankaj has referenced was specifically to MS BU segment, if you are to think of it. Okay. What would be the pipeline in hand currently on both BLA and remote monitoring? Remote monitoring, I talked about the fact that we had an order book of 25,000 sites, Manju, right? Yeah, correct. Out of which 15,000 is executed. We have also got incrementally an order book of another 1,000 sites, which is not ATMs, but that is on the bank branches and vaults. That is where we are. BLA, we have executed almost 95% of order book. It is already up and running. Yeah. In terms of a number, could you be able to share that what kind of visibility do you have in terms of adding over the next, say maybe over the next 24 months from now? Asim, go back to what we have said. Before we listed or around that time, we had an order book of roughly INR 2,000 crores. End of March quarter, again, I do not want to make this a quarterly habit because we are not L&D, but end of March quarter or full year FY 2022, we had an order book of INR 2,200. That order book is growing. It is growing healthily. That was your question number one. Second question you asked me was what, sorry? If you can repeat. No. Basically, I just wanted to get a sense that one thing on the BLA side, for example, one thing would be basically ATM orders in hand, and secondly, the kind of visibility that you may be open to bid for. Yeah. I think BLA, right now we have a BLA at about 5,500 machines. We are fairly conservative on the BLA business. We, I think are looking at adding about 1,000 machines a year, provided we can find an estate with the revenue and profit metric which makes sense to our capital allocation. So that's where we would stand. The business obviously doesn't come in bits and pieces. If you are able to win a good quality order, it may be a little more or a little less. But from a directional perspective, we think we'll be adding about an average of 1,000 BLA machines a year. Got it. And just lastly, this incubation that you just talked about at the end of your opening commentary. Any sense that you would want to give which segments are you really looking for- I think, again, whatever we were highlighting during our roadshows, I think these are the sectors which are broadly around collections. To create infrastructure around collections mechanisms in India, both from logistics and technology side. That remains an area of interest where we want to start accelerating the work and start investing time and resources. So this will be more home grown and inside. I think from an investment perspective, we continue to look for opportunities in B2B payments and in the whole remote monitoring side to see if we can find opportunities to invest in good upcoming technology companies there. Got it. Thanks a lot, and again, congratulations to the team. Thank you, Asim. Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead. Yeah. Good afternoon. Thank you for the opportunity. Congratulations for the great set of numbers. My question was, you talked about the CIC growth, 2.5% QOQ and 6% growth in terms of the ATM cash resolve or cash handling by ATMs. Would it be possible against this 6% QOQ for the industry, how would our cash handling growth would have been? Sure. This is Anush here. That number, Achal, would be between around 4%-5% for us. Okay. When you compare Q1 to Q2, cash handled by payments would be a 4%-5% growth. Understood. The second question I had with respect to the margin. Now, I see that given the cost inflation, we have done extremely well. Is it possible to get some more color in terms of what kind of cost inflation have we seen, and have you been able to pass on that cost, or it's the compliance-driven pricing which is taking care of these costs? I think it's a mix when you think of it. Inflation pressures are both obviously in wages and fuel for a company like us, and some raw materials or some input costs. I think for us, and this was a question which came in last quarter as a potential concern, and as a team, I think we've again dealt with inflation or high inflation environments before. We're trying our best to manage that. What you see is a mix of the volume of business increasing and therefore operating leverage impact. Pricing changes which are not only limited to compliance and even to the earlier question, Asim's question, I just want people to know that there is compliance-related pricing increases in some parts of the state, but there's also businesses where annual increases or inflation-linked increases are being either discussed or closed out. You see that benefit of that. That is what you are seeing translated to the P&L in front of you. Understood. I think I did say this in my comments, that part of the reason of our overall margin increase, which you also see here, is the fact that our large part of the revenue in Q1 is annuity and services revenue overall. The product linked revenue is lesser, and that has a margin impact automatically, but we have still grown the overall numbers well. Got it. Just one more question I had. Is it possible to get some more color in terms of the number of touchpoints for the cash business? What is the growth QOQ or YOY? I think we are roughly about 115,000 touchpoints. Again, I tell people this is not a number you should see every quarter. I think at least a 6, 12-month basis is a number to track on, because many times there will be some shifts on contracts between banks, and therefore a quarterly number is not the best way to keep worrying about this. But 115,000 is roughly the number of points that I remember we have. Understood. Any color you can give on the replacements or the new ATM deployment by the industry or by the banks? If you could talk about any developments you could highlight. In our May call, when we had finished the full year, we talked about that last year, the ATM installed base in India grew by close to 10,000 units. It's only a couple of months since then, so nothing significant to report at this stage. Also, the RBI data hasn't come out for the month of June yet. Again, this is a number which you want to track more on an annual basis than a quarterly basis. To your second question on the replacement cycle or expansion cycle, there are large RFPs either underway in the process of getting bid or closed, or RFPs coming out. But we feel that this will get bunched towards the second half of the year. Understood. This is very helpful. Thank you. For the large public sector banks. Understood. Thank you so much, Rajiv. I wish you all the best. Thank you. Thank you. The next question is from the line of Sanjay Avatramani from InvPvC Capital. Please go ahead. Yeah. Good evening, and thank you for giving me this opportunity. Sir, I wanted to know that if you can highlight the unit economics for this brown-label ATMs which we install. Hello. Yeah, we hear you, sorry. Yeah. Good evening. Generally, the ground level ATMs, we have a threshold of our IRR, and we generally go for, that is the reason Rajiv has mentioned that we are looking only for 1,000 ATMs, BLA ATMs in a year. We ensure that our threshold IRR is met for any sort of BLA or CapEx investment. It is very difficult for us to give you some sense of the unit economics in this call. But are you trying to ask what are the cost elements of the business or you are saying what is our targets in this business? I was not very clear on the question, actually. Sir, basically, I was asking about the cost per se itself, because as you mentioned that yearly you will be moving ahead with roughly in the range of 1,000 installation of ATMs or replacement of ATMs. So I was asking perspective on the cost basis, sir. Yeah. I think our estimate is that basis of 5,000 machines we have been running now, our estimate is that basis the investment required for a ground-level ATM. I think we are our IRRs are in the high teens number. That is post-tax IRR. That is what we target in an ATM. Again, in prior calls, we have explained our strategy. We think in any given year between 10 to 20,000 ATMs could get contracted out for BLA. We are focused on only the high-quality, high yield, high transacting ATMs, which are for the largest banks you know of in the country. Our current estate of 5,000 ATMs is almost got 65%-70% of that is with SBI. Okay, this is very helpful, sir. Thank you. Thank you so much for this and good luck for FY 2020. Thank you. Thank you. The next question is from the line of Nitin Khandekar, an individual investor. Please go ahead. Hi, Rajiv. Good afternoon. Hi, Nitin. My first question is about the industry size relative to its counterpart in the Western world. When we look at the U.S., the top four companies account for revenue of, I guess about $18 billion annually which includes some revenue from Europe as well. I believe the size of the industry in India is about $2 billion. In the context of India's GDP relative to the GDP of the U.S., I believe the Indian industry could outpace its U.S. counterpart over the next few years. What is your estimate of the industry size in India and what would be our strategy to outperform the industry in India going ahead? Nitin, our estimate on when you look at the market data for India, let me talk about that before we think global. Roughly the TAM for this market in 2021 was about INR 8,000, INR 8,500 crores. Right? When I talk about that includes everything from automation to managed services, ground level deployments, white label market, cash management, and also remote monitoring. The industry estimate on this is that this TAM is likely to become a INR 20,000, INR 21,000 crore market by FY 2027. I won't say billions of dollars given how the devaluation is happening, I prefer to talk rupees because that's what we are working in. That's the size. India is a reasonably cost-effective or value-focused market. I think we, and also because of volume and we are the world's third or fourth largest ATM market in the world. I think there is pretty healthy competition and prices are pretty aggressive given the market conditions. That's what I could give you some sense to help you understand the market and the market direction possibly, based on industry estimates. As a company, for us, basis the current lines of business we have, we have set out the goal to double our business in four years from FY 2021 to 2025. What would be your specific strategies if you could throw some color on that, please? We were predominantly a cash management company till FY 2015, post which we started expanding into all adjacencies. When we are selling to banks, starting from automation solutions, software for the ATM networks, remote monitoring services at ATM sites and bank branches, the ground-level deployments. Our approach here is that we were a service provider till FY 2015 and we want to become more of a solutions company offering end-to-end solutions which encompass both logistics and technology solutions, help serve the banks because they have a very distributed network in the country and they don't find people like CMS who can handle this for them. And move up the value chain by giving them a mix of services both on logistics as on the technology side. Our quality of service, our network, our reach, our integrated capabilities are already resulting us in delivering the best quality services to banks. This is a very difficult measure to measure, but it's been actually finding that we've had some of our customers, in fact from internationally and from U.S. and all saying, "Why don't you come and start services here? Because we don't find companies with your capabilities or quality of service." That's the approach. Keep high-quality services, have a fantastic network to offer this so that customers come to you before they go to somebody else, use the economies of scale and operating leverage to be able to make a higher margin than anybody else, and also run very tight operations with high automation to run to or deliver a lowest unit cost, and therefore maintain our margin profile. I'm sorry, it's a very large presentation, but I'm trying to give you a summary answer. Thanks, Raju. That's helpful. Secondly, based on the consolidated data, EBITDA margin in Q1 is the highest in the last seven quarters at least. How would you comment on the variable versus fixed components of the OPEX? A small part of the EBITDA expansion is attributable to your company's vehicle maintenance costs, which after peaking at 10.3% of revenue in Q2 FY 2022, has tapered off to 9.3% and 8.6% in the last two quarters. This is in spite of the fact that the prices of fuel have been high since March itself after the Ukraine war broke out. How would you comment on this particular line item and on the overall margin profile? Thank you. Sure. Nithin, I'll let you take that. Anush here. I think over the last couple of calls and even during the roadshows and in some of our presentations, you would see that we've invested a fair bit of effort in bringing the technology that we deploy to manage our routes. I'm speaking on the cash business because that's where a lot of the fixed and variable costs get associated. In just being able to do a far better quality of throughput in terms of the route management, the predictive analysis around productivity, and just getting better control of that fixed cost. COVID, we were able to really reap the benefits of being able to deploy the technology and get automation happening. There's also a lot of automation that has been implemented and various other things which are in the process of implementation for some of the manual processes, be it things like ATM reporting, cash processing, for instance. I think that combined with the synergistic benefits of certain scale and when we grow, it helps us to achieve, to some extent, a certain non-linearity of margin profile. With respect to the observation in terms of the margins, I must tell you that, yes, first quarter has been the best, and like you rightly said, it comes in the perspective of the inflationary headwinds being the most severe. We've in fact incurred expenses in the first quarter of also a wage review across the board for the cash business. That's already baked in there. With respect to the maintenance expenses, I think again, we, over the last year and even this year, deployed a significant capital to do a refresh of our fleet, partly driven by compliance and partly driven by the fact that new vehicles help us achieve better efficiency. To some extent, it has also helped us reduce the maintenance cost as well as reduce a little bit of our hiring expenses. That's probably what you're seeing there. I think it is like that. It is a lot to do. Whatever improvements you see, it takes a lot of effort on the ground by our field teams to monitor and track. A lot of our internal automation, which we do not sell to anyone else, is really about running and improving how tightly we run our operations and to prevent any leakages. I think some of that benefit has been part of the reason why our margin profile is different compared to our competitors and how we try and maintain and run the company. All right. Thank you. That is from my side. Thank you. Thank you. A reminder to all participants, you may enter star and 1 to ask a question. The next question is from the line of Ravi Naredi from Naredi Investment. Please go ahead. Thank you, management, for giving the best so far result of quarter 1. Sir, how much cash available in system by RBI, and how much higher than last year? Just give me a moment. As of May or June, the total currency-in-transit by the RBI was INR 32 lakh crores, which compared to March ending, I think, was INR 31 lakh crores. About an incremental INR 1 lakh crore or INR 1 trillion in circulation in this quarter. Okay. How we reduce the risk? Everything insured or anything new since happened and our cash went within quarter 1? I think the nature of business is such that there is risk, and that's why we work with the bank, work with companies like us to manage the risk well. It is part and parcel of our costs. I think from a revenue perspective, almost 4%-6% of the revenue is what goes towards risk costs, which could be theft, robbery, insurance, pilferages, whatnot. I think keeping that tight and running that is, we have a large team. We have almost 150 to 200 people, basis auditors and security advisors who are working across the country to keep these incidents under control. Right. This elevated net profit margin 15.2% in Q1 will sustain in current year or may be higher? From our side, what we've guide towards is the fact that we have ambitious revenue growth goals, which CAGR to an average of 18% CAGR we want to achieve. I think we should be able to maintain margins, like I said, from FY 2021 to FY 2025 basis. Very difficult to comment quarter by quarter exactly what will happen to margins, but we have done well. I think last year we finished the year with 14.6% margin for the full year, and current margin will expand Q4 to Q1. We will try our best to maintain our profit levels. Okay. This 18% growth we are hoping for next few years? FY 2021, we were a INR 1,300 crore company, roughly. Our target for FY 2025 is between INR 2,500-INR 2,700 crores. If you take the mid number of INR 2,600 crores, that becomes a double 2X in four years, which is roughly 18% CAGR. FY 2022, we had a 22% growth. Right. But I think from a guidance perspective, I think that 18% CAGR from this base is what we would like to guide you towards. Okay. Thank you very much. And last, CapEx plan for current financial year. Okay. So in the last call, we have given the sense that we are expecting INR 225 crore CapEx. So for the executions of all the orders, whatever orders in hand. And we are in this quarter also in line with the investing according in that line. Okay. Thank you very much. Thank you. Thank you. The next question is from the line of Jigar Walia from OHM Group. Please go ahead. Yeah, thanks for this opportunity. Would want to understand with regards to the employee cost and generally all the 20,000 plus, including the drivers, et cetera, for the 4,000 vans. These would all be on board, or do we have contract staff as well? And would want to understand typically on the attrition and normal staff inflation that you kind of generally see year-on-year. Hi, Anush here. With respect to your first question, typically we outsource the roles of drivers and security services. We have generally very few drivers and no security services on our payroll. We typically work through our partners or vendors for these services. To those extent it would be a contractual staffing. Rest of the team which handles the cash operations including the back office and the field would be in some cases on our payroll or in some cases we work with various staffing agencies. You had a second question on attrition and inflation. Yes, I think when you sort of look at it over the last few quarters, the attritionary trends have been a headwind for us as it is for the industry and overall India. If you look at the overall numbers, I think our attrition, which used to be in the range of low 20s, is right now trending towards high 20s percentages. We have a lot of our HR team and people function working with different skill development agencies to try and see how do we counter some of these attritionary pressures and make sure the focus for us was to make sure that we continue to maintain high levels of serviceability, high uptimes and high quality of operations. We do not want to get that affected and so far we are keeping a high threshold on that. You had a question, I think, on the inflation aspect. Could you just detail that, please? Yes. I mean, generally, with this attrition or normally for the type of staff that you have, typically, what is the inflation that you kind of see, I mean, in the past or maybe going ahead? This would be double-digit inflation for- No, not double-digit. I think it is linked to multiple things. It is linked to certain government wages and how they get revised. I do not think there is a simplistic answer to how it gets done. But I think you should assume, typically it is in the range of about 5% to 7%. 5% to 7%. And including the contract staff, what would be the total number of labor involved in the business? The overall employees involved in the business. We have team members, roughly 23,000 team members. Yeah. Is this including the outsource? Yeah. All including all employees, associates and the partners. All inclusive. Okay. Got it. Yeah. Thank you. Thanks. Thank you. Ladies and gentlemen, to ask a question, you may press star and one. The next question is from the line of Nirmal Bari from Sameeksha Capital Private Limited. Please go ahead. Yeah, sir. Thanks for the opportunity and congrats on the very good set of numbers. My call dropped in between, so probably my question might be repeated, but you said that we have about 35% compliance at present and it would move to 65% by the end of the year. So if you can break it up between what is the level of network compliance and what is the level of compliance on cassette swap at present and where do we expect it by end of year? Sure. I think like Raju was mentioning on the call, I think more appropriate to track this percentage and the development on an annual basis than breaking it up down into quarter. Rest for sure, I think broadly when we say we would like to move from 35% as of last year-end to 65%, it will sort of happen in a smooth manner. There is not really too much of a lumpiness to this, partly because there is a certain just time of execution, right? Buying the vehicles, getting the infrastructure ready, deploying them on the ground. So it should sort of fall into that broad trend line. Again, when we refer to this compliance, it is still more to do with the base RBI and MHA compliance. On the CapEx swap, I think that is the project which generally is lagging behind the overall compliance, given the fact that the infrastructure requirement and the upgrade needed by the banks in terms of some of the hardware procurement has a certain lead time. So RBI has given a mandate to all the banks that they should be completing this project by March 2023. Many of these banks are in discussion with us and we think that the implementation of that compliance should accelerate through this year. Would it be fair to assume that a significant proportion of price increase that we are looking at from the compliance angle, that could happen when this cassette swap compliance comes in? No, I think the compliance is very complex. I do not think you can break it down to these numbers on a simple basis. Compliance has got network upgradation costs, which is your vaults, which is your vans, it is your security, it is also training. I think that we indicated in May that we were at a 50% compliance level by May as a company, and we are trying to get to 70%-80% compliance by the end of this year. From a cassette swap perspective, again, if you take the specific of what will cost. Sorry, what would a cash management company earn on a cassette swap basis? Forget the profit, just as a revenue. I would think that on a blended basis, it would be everything you do for ATM, from cash management, compliance, cassette swap, I think it will be roughly at 10% of the total revenue. From an overall compliance level, it may be at 20%-25% of the revenue. Now, the banks need to invest. The banks need to source the cassettes for their installed base of ATMs. I think that is where there are choke points of supply-side constraints because India, as I said, is the world's third largest ATM market. You cannot overnight go and start buying so many cassettes landing up in the country. That is the only area which is going slow. Otherwise, I think both from the regulator perspective and CMS as the largest company in the sector, I think we are moving along quite rapidly. Okay. My second question is, you said at the beginning of the call that it is important to look at the annuity revenue. Of the total revenue that we had, how do we segregate annuity revenue from the rest of the one-time product and related revenue? What was it for the current quarter and the previous quarter? Sure. At a management level, we have three levels of revenue. We have product sale, we have annuity, we also have something we call rec link. For the sake of simplicity and not confusing people, let's assume annuity is both annuity plus rec link. In FY 2022, our overall revenue, our annuity revenue will have been 92% of our revenues. That seasonally, right now in Q1, is at 97%. That obviously product sales is an automation. These are not seasonal, but they can get bunched up into certain quarters depending order cycle, supply cycle, installation cycles. Okay. Second question. The other question was on our managed services book. Now that we have executed almost 95% of the order book there, for the current year, would the revenues kind of stagnate at the current quarterly level? Or if there would be growth, what would be the triggers for growth in that? That's a good question. Let me just use your last question to help explain a little better of where we are and where we are coming from, for the sake of knowledge for you and your other colleagues here. If I had to think back five to six years ago, the product or the one-time revenue type business in our revenue may have been close to a 30%, 35% of our revenue. That's now down to a single-digit number. Again, we have nothing against that business. It just depends upon the volume of business and the margin profile. I think the idea is to make sure that we have a more smoother annuity-type revenue, which is more predictable, both from revenue and also from planning your network and cost and how you plan for growth. Second question on the order book. Before I go to the order book, I will again go back and say, and repeat it one more time, that our goal is on a four-year basis to achieve of 18% sort of CAGR revenue. If you take that 18% CAGR revenue as a goal for this year, we have done X percentage of that in the first quarter, and then therefore it means we would hope to grow at a particular rate, roughly 4% every quarter on quarter, to get to a number for our internal target for this year. So quarterly, obviously, we are looking at that growth, on a Q on Q basis, and therefore 18% on a Y on Y basis. Q1 is very solid. We have, as I was telling other people in the day, we still have nine months of the year to finish. From an order book perspective, we have from a current order book of INR 2,500 crores, almost INR 1,900 crores is executed. To your specific short-term question between last year to this year or this quarter, I would say that you would see healthy growth because we started executing the order book last year. We got some revenue recognition of that last year. We will get a much larger one this year. Even next year, we should see this grow very healthily. But this is at a point in time. There are RFPs which are expected to come. Whether we win or lose, we don't know. But depending on our win rate, our target again is to be able to keep growing our business at that 18% CAGR, in the foreseeable future, and that's how we would do. Last three to four months, we have won RFPs worth INR 250 crores already. Okay, that's helpful. Thank you. I'll call back in the queue. Thank you. The next question is from the line of Amit Chandra from HDFC Securities. Please go ahead. Yeah. Thanks for the opportunity. My question is more from the competition side. Maybe if you can throw some light on what kind of competition you're seeing, maybe in the automation business or in the managed services or in the cash management, particularly from the majors like Hitachi, Euronet, or AGS or SIS. Is there any increased competition that you're seeing in the markets? If you look at the overall industry, you have given some of the names, and these are leaders in all the rights in their specific industries. CMS is one of the more unique players which cuts across all the product lines, whether it is cash management, remote monitoring, managed services, automation, software. We would maybe end up competing in some business lines, but we would also be a partner to many of these companies for some of the businesses they do. Is the competition increasing? I think competition in India for any business or sector is always very fierce. I do not think there is anything dramatically new or lesser. However, if I think of a structurally basis, what we have seen post-demonetization and then GST and then COVID and now a higher interest rate regime, there has been a shared shift to stronger, better quality players. There is also been consolidation in the sector. Whether it is MS space or the cash management space, there is some consolidation going there. We have seen the share of the top two players increase steadily over the last couple of years. How that trend goes in the future, we do not know, but I think that is a global trend also, because when you think of cash management, you need large integrated companies which are able to cut across different product lines and are able to service the length and breadth of the country. That is where the route dynamics and operating leverage and risk management comes into play. Do we see any new competitors right now? No, but people have come and gone. I think CMS remains one of the largest and the strongest companies for the last decade in the sector. Why I ask this question is because some of the competition, especially in the cash management side, have actually become your client, right? Because most of the Hitachi or SIS, they are not doing the cash management and they are mostly outsourcing it, and they are focusing more into managed services, right? Is that a trigger in terms of scaling up the cash management business? I think we were the largest and the best cash management company in 2015. I think after that was not our aspiration anymore. Our goal was to simply say, how do we increase our TAM? Again, when you think of TAM, our goal is to offer a high-quality service, earn fair margins, and build scale. That is what we have done from automation side, where we are the second-largest OEM in the country today. When you think of software, we are the largest. When you think of remote monitoring, by the end of this year, we will be the largest in the country. The only area where I have been very clear to underline this in bold many times is like the brown label business, which is very capital-intensive, is something where we do not aspire to be a number one. That is why we do only 5,000 ATMs. India may have 90,000 brown-label ATMs, we do only 5,000 for that. We maybe go to 6,000, 7,000, 8,000, 9,000 in the next 3 to 4 years. We don't aspire to do 30,000, 40,000, 50,000 ATMs there. From a perspective of, I think in end of the day, in a market like India, having more integrated offerings across the business is what makes sense because that's when we are able to deliver the most value to a customer. But we have also seen companies exist as specialist companies. They only do one product line in cash management, and they build scale. At what point will they sell out or sell or, I don't know. Who knows? But our approach has been to keep growing our TAM and line of services. Again, also linked to what our customers want from us, what a Hitachi or a Euronet or a SBI or a Bank of Baroda wants from us is the way we are also trying to scale our business. Okay. In terms of more from a macro perspective, with the surge of UPI and with the increase of digital transaction, don't you see that structurally, the number of transactions for ATM is coming down? With the increased compliance cost, don't you think there is a structural threat to the margins in this business, especially on the BLS side? I think this is the assumption. We don't know. Is cash growing less than UPI? Absolutely. Is UPI taking over business from debit cards and credit cards and different payment wallets? Of course. However, and this is not data we updated recently. I think we'll come out with this in the next couple of months. When we look at the CMS cash index trends, there is healthy growth of cash in our network across the country. I can't compare apples to UPI, but I look at cash at what CMS handles on cash management, which is roughly 68%-70% of our revenue, because we have other business which is not linked to that. We do see healthy trend lines in semi-urban and rural, where the growth levels are higher than metro and maybe urban. I think when I talk to industry players, I talk to banks' chairmans, I don't think they see that usage pattern in the majority of India changing dramatically over the short term. It may change over the next 7 to 10 years, and we don't know. Our goal as a team remains what? I remember when the management team came to CMS in 2009, we were predominantly an IT infrastructure player from where we morphed into a cash management company, and now we have gone into technology solutions and services. Our idea is to keep offering solutions to BFSI and retail and grow along with them. In fact, we are seeing a very good pickup, as Anush talked about, very good usage or increase in cash volumes and retail specific sectors, I think he highlighted in his talk. How do we bring solutions to them? There will be an increased outsourcing from banks because banks are still not outsourcing a large part of this work. From an 8 to 10-year perspective, I think there is a fairly decent macro for reasonable growth for what we do today. As a team, I think we have proven that we have been very agile in launching new services, which is helping us grow the way we are. Yeah. My last question is on the cash management business. In terms of the contract that we have with banks, is it a long-term contract or it is being revised yearly? Is it based on per ATM unit economics basis? Maybe you're charging, like per ATM per month basis, or is it based on the number of refills? How is the basic business structure there? In the interest of time, because we are at 5:00. I think this is disclosed in a lot of detail in our RHP and DRHP documents because this will take us 10 minutes to explain to you across our business lines. The contracts, for managed services clearly run into multi-year recurring contracts. In the cash management side, we look at contracts more on annual or 2-year, 3-year basis because we want to have the flexibility to look at prices depending on inflation because the impact of both wages and fuel both upwards and downwards is significant in that business. Therefore, we like to have the flexibility to look at pricing on an annual basis. Having said that, our attrition of clients is almost negligible or zero. Looking at a base of, I know when we came here, we were doing 4,000 or 5,000 ATMs. Today, we do more than 70,000 ATMs. I am just saying ATMs, but retail and cash ramps, all of those metrics will show a very good healthy growth. Okay, sir. Okay, I will take that offline with you. Thank you. Thanks for the answer. Thank you. Bye. Thank you. The next question is from the line of Karan Bhanushali, an individual investor. Please go ahead. Congratulations on a good set of numbers. Your margins have improved year-over-year. I wanted to ask if these can improve further and what it entails. Well, thank you. I think from a margin perspective, we are quite happy with the way our margins have been tracking last year, current quarter. As I have guided our investors over preceding calls, we as a team think the opportunity after the whole COVID era and the consolidation India before that points us to a larger share of revenues in the broader ecosystem we play in. We are quite focused on making sure that we increase our revenue market share in the industry. How we manage margins and as a management team, managing revenue growth, profitability, profit margins, market share is something which we have to be agile at every quarter. I think we will have to think of what we need to do from a longer term of the interest of the business rather than worry about short-term measures. As of now, yes, they should, but it is not something which we would have any visibility or we could give you some guidance on right now. The market is very dynamic. Okay. Can you also talk about your inorganic growth plan? Our inorganic strategy or proof points in the last seven, eight years is that we've tried to do smaller acquisitions, mostly to acquire new capability or enter into new segments. If there is something strategic in our core businesses, we are open to acquisitions. However, we have done one or two of them, but however, there's usually a big gap in the value of what we think we would like to pay and what a seller may want, especially from a company like us. Because when they start talking about, they start looking at our numbers, our margins and starting extrapolating that. It's not been an easy dynamic for us. We also don't think that we need to go and grab companies and buy them because I think we are able to grow our business organically, and we'd rather invest our capital behind businesses which we have far more orders or contracts, where we have far more clarity, control, and recurring nature. I think that's a business opportunity we have seen, and that's the order book we have built. That's where we are deploying our capital. Having said that, if something strategic comes up at the right price and we can maintain our capital allocation discipline, we're obviously looking at it. Our current energies are going into non-cash management, non-managed services, into more asset-light technology-oriented businesses where we can use either minority or majority investments to launch or try out new businesses. Okay. Thank you so much for answering sir. Thank you. Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Sorry, I think I had already closed the comments initially, but just to summarize, thank you so much for your time and patience. Thank you for your journey with us as investors. We feel the environment is exciting. At the same time, there are challenges as we explained. Our focus is head down, focus on strong execution, continue to improve quality of service for our clients so that we have a very good moat on our business and use FY 2023 to start piloting new business ideas which can become a bedrock for growth from the FY 2025 onwards. Thank you and have a good evening. Thank you. On behalf of PhillipCapital, that concludes this conference. Thank you for joining us and you may now disconnect your lines.