AGS Transact IPO review (May apply)

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Review By Dilip Davda on January 15, 2022

•    AGSTTL has been making a bee-line for its maiden float since 2010.
•    It is one of the largest integrated Omni-channel payment solution providers. 
•    Its top line for the last three fiscals remained almost static.
•    For 5M-FY22 it has incurred losses that raise concern.
•    Based on all parameters, IPO is fully priced. 

PREFACE:
The company has been trying to float its maiden IPO since 2010. It first filed DRHP in September 2010 for 25% equity dilution with two merchant bankers Avendus and Yes Bank. Thereafter refiled it in March 2015 for Rs. 1350 cr. including fresh issue worth Rs. 400 cr. with a team of 5 new merchant bankers. It again filed a third draft prospectus in August 2018 for Rs. 800 cr. OFS with three merchant bankers, and finally now it is entering the capital market with its OFS of Rs. 680 cr. this month (January 2022). So in a way, this company's maiden float finally sees the light of the day after nearly 12 years. 

ABOUT COMPANY:
AGS Transact Technologies Ltd. (AGSTTL) 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). It provides customised products and services comprising ATM and CRM outsourcing, cash management and digital payment solutions including merchant solutions, transaction processing services and mobile wallets. As of March 31, 2021, AGSTTL were the second largest company in India in terms of - revenue from ATM managed services under the outsourcing model, and - revenue from cash management and the number of ATMs replenished (Source: Ken ATM Report).  

As of August 31, 2021, it deployed 221,066 payment terminals and were one of the largest deployers of POS terminals at petroleum outlets in India, having rolled out IPS at more than 16,000 petroleum outlets with 28,986 terminals in India, as of March 31, 2021 (Source: Ken Payments Report). The company also pioneered IPS with OMCs (Source: Ken Payments Report). For the five months ended August 31, 2021, and the financial years 2021, 2020 and 2019, it derived 95.9%, 95.6%, 95.5% and96.1%, respectively, of revenues from operations in India where the business started, although AGSTTL 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. 

The company operates its business in the three segments i.e. Payment Solutions, Banking Automation Solutions and Other Automated Solutions for customers in retail, petroleum and colour sectors. In April 2021, to further enhance its digital capability and to leverage the PPI authorisation issued to a subsidiary, ITSL, AGSTTL started open-loop Ongo prepaid card, which can be used by consumers to pay for transactions. Its Other Automation Solutions business segment encompasses the sale of machines and related services to customers in the retail, petroleum and colour segments. 

Customers for retail sector offerings include More Retail Private Limited, while customers for petroleum sector offerings include HPCL, IOCL and BPCL. Its 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. As of August 31, 2021, it had installed, maintained or managed a network of approximately 72,000 ATMs and CRMs, providing cash management services to 46,214 ATMs through SVIL, installed 221,066 merchant POS and approximately 46,800 cash billing terminals, automated approximately 17,924 petroleum outlets and installed approximately 88,521 colour dispensing machines.

It has also diversified into VAS, which includes customer-facing services such as loyalty programmes, invoicing solutions and merchant credit. Further, it provides Digiview surveillance solutions to various customers. AGSTTL has also entered into a strategic agreement with RBL Bank Limited in relation to a proposal to provide an integrated prepaid card solution based on the National Common Mobility Card ("NCMC") at Bangalore Metro Rail Corporation Limited stations, comprising the provision, acquisition and issuance of NCMC cards.

ISSUE DETAILS/CAPITAL HISTORY:
For listing benefits and providing exit to some of its existing stakeholders, the company is coming out with a maiden secondary issue worth Rs. 680 cr. via book building route. The company has fixed the price band of Rs. 166 - Rs. 175 for this issue and will be issuing approx. 38857155 shares at the upper cap. The issue opens for subscription on January 19, 2022, and will close on January 21, 2022. The minimum application is to be made for 85 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 32.28% of the post issue paid-up capital of the company. The company has allocated 50% for QIBs, 15% for HNIs and 35% for the Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., HDFC Bank Ltd. and JM Financial Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company raised further equity in the price range of Rs. 156.52 - Rs. 444.50 between August 2012, and February 2015. It has also issued bonus shares in the ratio of 11 for 4 in June 2010, and 3 for 1 in February 2015. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 39.13 and Rs. 86.18 per share. 

Since major OFS is coming from promoter selling shareholder Mr Ravi B Goyal, the company has entered into an agreement (VEPL CCPS SPA) of issuing 650000000 CCPS worth Rs. 650 cr. and thus though the OFS of Rs. 680 cr. is being made, the company will be getting back Rs. 650 cr. for retiring its debt. (Refer to page 104 of the offer document). 

This being the pure offer for sale issue, post-IPO AGSTTL's current paid-up equity capital of Rs. 120.39 cr. will remain at the same level. Based on the upper price band, the company is looking for a market cap of Rs. 2106.87 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals on a consolidated basis, AGSTTL has posted turnover/net profits of Rs. 1823.63 cr./ Rs. 66.19 cr. (FY19), Rs. 1833.53 cr. / Rs. 83.01 cr.  (FY20) and Rs. 1797.15 cr. / Rs. 54.79 cr. (FY21). For the first five months of FY22 ended on August 31, 2021, it has incurred a loss of Rs. - (18.11) cr. on a turnover of Rs. 762.30 cr. The last 17 months' setback is attributed to the ongoing pandemic impact. 

For the last three fiscals, AGSTTL has posted an average EPS of Rs. 5.50 and an average RoNW of 13.36%. The issue is priced at a P/BV of 3.82 based on its NAV of Rs. 45.85 as of August 31, 2021. (Also on a post IPO basis). 

Though based on its losses for 5M of FY22, the asking price is at a negative P/E. Based on its FY21 earnings, the IPO price is at a P/E of 38.46 and on an average EPS of last three years, it's at a P/E of around 31.82. Thus the issue is fully priced on all parameters.

DIVIDEND POLICY:
The company paid a dividend of 10% for FY19 and FY21, while it skipped it for FY20. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, AGSTTL has no listed peers to compare with. Recently listed CMS Info is a close peer which is trading at a P/E of 28.88. (As of January 14, 2022). However, it is not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORDS:
The three BRLMs associated with the offer have handled 32 public issues in the last one year, out of which 9 issues closed below the offer price on the listing dates respectively.

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