15 reasons why, AGS with 35% higher revs incomparable to CMS Info

Published on Saturday, January 15, 2022 by Rohit Kerkar

AGS Transact Technologies Ltd. (AGS) cannot be compared to any listed peer in India and not even CMS Info Systems (CMS). AGS can be compared somewhat to illustrious global peers (Pinelabs is valued at 75x plus of revenue) or to internet new-age economy companies or Unicorns.

AGS is one of the largest integrated omni-channel payment solutions providers in India in terms of providing digital and cash-based solutions to banks and corporate clients, as of March 31, 2021 (Source: Ken Payments Report). AGS key offerings include ATM and Cash Recycler Machines (CRM) outsourcing, cash management, digital payment solutions and automation solutions. AGS provides cash management services through its wholly-owned subsidiary Securevalue India Limited to 46,000+ ATMs pan India.

AGS Transact Vs CMS Info Systems

1. AGS is the "Only" company in India to provide the full range of services in the ATM managed services market. AGS manufactures ATMs and ATM equipment (CMS doesn't) along with ATM managed services and cash management. Only 20% of AGS business comes from cash management services unlike in case of CMS where this contribution is huge.

2. AGS is into digital payment solutions and digital payments vis-a-vis CMS and AGS has substantial revenues coming from these business streams. AGS is more of a new-age new economy digital player with offerings such as Ongo and Fastlane solutions.

3. AGS built digital payment solutions such as Ongo (merchant acquiring 221,066 POS terminals) & Fastlane (First integrated RFID payment solution for fuel in India). AGS is an end-to-end digital payment solutions provider which provided an integrated prepaid card solution --- Fastlane is live across approximately 144 HPCL fuel outlets across Mumbai & Pune. Payment through prepaid wallet on a mobile application on which the amount of fuel is preset. Includes a loyalty and rewards program that provides cash back to customers.

4. AGS is the leading player in digital payment solutions for Oil Marketing Companies (CMS is not in this). AGS pioneered IPS with OMCs (Source: Ken Payments Report). Overall, 22.3% of fuel retail outlets in India use POS services offered by AGS.

5. AGS is an end-to-end digital payment solutions provider offering Value Added Services (VAS) to monetize POS network. Value Added services including loan against card receivables, local account management, prepaid or loyalty programs, cash@POS, billing software etc.

6. AGS is one of the largest deployers of POS terminals at petroleum outlets in India and pioneered IPS with OMCs. AGS has 86 bank partnerships. In Retail, AGS has a team of 250 "feet on street" personnel and 393 channel partners. As transaction volume and value grow, AGS will get more revenues. For the five months ended August 31, 2021 and the financial years 2021, 2020 and 2019, the Gross Transaction Value (GTV) transacted through AGS POS terminals at OMC (oil marketing cos) retail outlets was Rs 9,517.8 crore, Rs 13,365.63 crore, Rs 7,499.05 crore and Rs 2537.68 crore, respectively. AGS has orders in hand from major OMCs including Hindustan Petroleum Corporation Limited ("HPCL") and Indian Oil Corporation Limited ("IOCL"). Axis Capital IPO Note on AGS Transact Technologies Ltd. (AGS) points out that in the 5 months ended August 2021, AGS had the highest number of terminals (221,066) vis-à-vis last 3 fiscals; and the highest number of merchants (180,993) vis-à-vis last 3 fiscals. In fact if the gross transaction value (GTV) as of August 2021 were to be extrapolated to the full fiscal 2022 then they would be at Rs. 28,639.5 crore, which is the highest ever since FY19.

7. All ATM outsourcing contracts awarded to MSPs like AGS are end-to-end in nature wherein 'Cash management' is one of the activities. These are long-term (7-10yrs) contracts made directly with Banks vis-a-vis the cash management contracts (short-term) which companies like CMS & Securevalue make with MSPs.

8. AGS' multiple revenue stream from various growing platforms including service revenue places it in a unique position compared to CMS. For FY21, AGS revenues stood at Rs 1,758 crore, which is about 34% higher than CMS' revenues of Rs 1,306 crore for the same period.

9. AGS market capitalization stands at Rs. 2,107 crore. The recently listed CMS Info Systems Ltd.'s market capitalization is Rs. 4,381 crore as on 15 January 2022. AGS' market capitalization to revenues stands at 1.2 times while CMS market capitalization to revenues is significantly higher at 3.34 times, making AGS a value proposition for investors at the offer price.

10. Though it appears as if AGS FY21 price-earnings multiple on reported earnings works to 38 times at the upper end of the price-band of Rs. 175 per equity share; Adjusting for the interest savings, AGS revised price-earnings multiple for FY21 works out to 23.5 times, which is much lower than the listed peer CMS' PE of 26 times.

    CMS price-earnings multiple stands at 26 times. However, given that AGS has a strong payments business which can be leveraged to providing loans, and enhanced digital services, makes AGS a more agile and fast-growing company.

    More importantly, AGS financials will improve post the IPO. As per the document, the promoter of the company, Ravi B Goyal will offload his stake and infuse the share sale proceed to reduce the debt. AGS' net debt, which currently stands at Rs 1,100 crore, is expected to drop sharply to about Rs 450-500 crore post the offer. As a result of the loan repayment, the company will be able to retire some of the high-cost debt and reduce finance costs.

    In FY21, AGS incurred interest costs to the tune of Rs. 133 crore. AGS should comfortably reduce finance costs by about Rs. 60-70 crore per year going forward, which should reflect directly in the bottom line. As a result, AGS post-tax earnings per share should easily jump by at least Rs. 3 solely due to interest cost savings. Adjusting for the interest savings, its revised price-earnings multiple for FY21 works out to 23.5 times, which is much lower than the listed peer CMS' PE of 26 times.

11. AGS revenue mix shows a very large Service Revenue Piece, generated from Cash payment, Digital Payment and Annual Maintenance contracts (AMC). Service revenues have a higher margin profile.

12. AGS operating profit (EBITDA) margin for FY21 came in at 26.5%. Comparatively, CMS EBITDA margin for FY21 stands at 22.5 times.

13. AGS price-to-book value (PBV) stands at 3.8 times at the upper-end of the price-band, while CMS price-to-book value is 4.45 times.

14. AGS has international business and revenues from this (CMS doesn't). AGS has expanded internationally to offer automation and payment solutions to banks and financial institutions in other Asian countries comprising Sri Lanka, Singapore, Cambodia, Philippines and Indonesia. AGS also entered into an alliance with ACI Worldwide ("ACI"), a leading international payments solution provider, which has further strengthened its value proposition to customers and expanded its geographical presence in select south-Asian countries, which makes it a unique and geographically diversified company. AGS has multiple revenue streams, which de-risks its business model from any down-cycle in any vertical.

15. AGS marquee customers in the Payment Solutions segment include ICICI Bank Limited, Axis Bank Limited, HDFC Bank Limited and Federal Bank Limited --- approximately 50 banking customers. AGS has orders in hand from major OMCs including Hindustan Petroleum Corporation Limited ("HPCL") and Indian Oil Corporation Limited ("IOCL"). Other corporate customers for their digital portfolio include Dr. Lal Pathlabs Limited, Patanjali Ayurved Limited, Sunshine Teahouse Private Limited (Chaayos), RJ Corp Limited, VRIPL Retail Private Limited, Om Sweets, Lata Mangeshkar Medical Foundation and Organic India Private Limited. AGS colour operations primarily comprise the supply of automatic paint dispensers and related services, and serve customers including Asian Paints Limited, Kansai Nerolac Paints Limited and Berger Paints India Limited.