Radiant Cash Management IPO review (May apply)

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Review By Dilip Davda on December 21, 2022

•    RCMSL is an integrated cash logistics player leading the RCM segment.
•    It enjoys a lion's market share in tier II and tier III cities.
•    Based on its Financial data, the issue is reasonably priced. 
•    Investors may consider parking funds with a long-term perspective. 

PREFACE:
RCMSL filed its DRHP for a fresh equity issue worth Rs. 60.00 cr. and an Offer for sale (OFS) of 30125000 shares. But now as per RHP, while maintaining the fresh issue quantum at Rs. 60.00 cr., it has increased the OFS size to 33125000 shares i.e. rise of 3000000 shares. Thus the issue size is enhanced by Rs. 29.70 cr. for the OFS portion. 

ABOUT COMPANY:
Radiant Cash Management Services Ltd. (RCMSL) is an integrated cash logistics player with a leading presence in the retail cash management ("RCM") segment of the cash management services industry in India and is one of the largest players in the RCM segment in terms of network locations or touch points served as of March 31, 2022. (Source: Company Commissioned F&S Report). It provides services across 13,044 pin codes in India covering all districts (other than Lakshadweep) with about 55,513 touchpoints serving more than 5,388 locations as of July 31, 2022. As of the same date, it has 11 vaults, 16 strong rooms, 28 safes, a fleet of 739 fabricated vans, and 2012 employees. Above 20% of the employees are ex-servicemen. 

Its marquee clients include some of the largest foreign, private, and public sector banks, and the end user of services include some of the largest e-commerce companies, retail chains, NBFCs, insurance firms, e-Commerce logistics players, railways, and retail petroleum distribution outlets. RCMSL enjoys a lion's market share for RCM in Ties-II and Tier-III cities and sees vast opportunities. 

RCMSL caters to a broad set of outsourcing requirements pertaining to cash management services for banks, financial institutions, and organized retail and e-commerce companies in India. The company operates its business across five verticals, namely 1) cash pick-up and delivery; 2) network currency management (also known as cash burial in industry parlance); 3) cash processing; 4) cash vans /cash in transit, and 5) other value-added services.

Though we witnessed demonetization, cash remains the king and its circulation has increased even on pre-covid levels. India is densely populated and believes in cash as the king. Thus, RCMSL is confident of maintaining the trends reported. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of fresh equity issue worth Rs. 60.00 cr. and an OFS of 33125000 equity shares to provide an exit to some of its stakeholders. It has announced a price band of Rs. 94 - Rs. 99 for equity shares of Re. 1 each. At the upper cap of the IPO price band, the company will issue approx. 6060600 fresh equity shares. The overall size of the issue will be approx. 39185600 shares for mobilizing Rs. 387.94 cr. The issue opens for subscription on December 23, 2022, and will close on December 27, 2022. The minimum application is to be made for 150 shares and in multiples thereon, thereafter. From the net proceeds of the fresh issue, RCMSL will spend Rs. 20.00 cr. for working capital, Rs. 25.48 cr. Capex for specially fabricated armoured vans, and balance for general corporate purposes. 

Post allotment, shares will be listed on BSE and NSE. The issue constitutes 36.51% of the post-IPO paid-up capital of the company. RCMSL has allocated 50% for QIBs, 15% for HNIs, and 35% for Retail investors. 

The three Book Running Lead Managers for this issue are IIFL Securities Ltd., Motilal Oswal Investment Advisors Ltd., Yes Securities (India) Ltd., and Link Intime India Pvt. Ltd. is the registrar of the issue.

Having issued initial equity shares at par, the company raised further equity shares in the price range of Rs. 180.00 - Rs. 293.80 (based on Re. 1 FV) between December 2014 and June 2020. It has also issued bonus shares in the ratio of 99 for 1 in March 2014, and 7.5 for 1 in August 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.00, Rs. 0.54, and Rs. 21.23 per share. 

Post-IPO, RCMSL's current paid-up equity capital of Rs. 10.13 cr. will stand enhanced to Rs. 10.73 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 1062.41 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RCMSL has posted a total income/net profit of Rs. 251.78 cr. / Rs. 36.50 cr. (FY20), Rs. 224.16 cr. / Rs. 32.43 cr. (FY21), and Rs. 286.97 cr. / Rs. 38.21 cr. (FY22). For Q1 of FY23, it earned a net profit of Rs. 15.32 cr. on a total income of Rs. 84.38 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 3.55 and an average RoNW of 27.27%. The issue is priced at a P/BV of Rs. 6.46 based on its NAV of Rs. 15.33 as of June 30, 2022, and at a P/BV of 4.94 based on its post-IPO NAV of Rs. 20.05 per share (at the upper cap). 

If we annualize FY23 earnings and attribute it to fully diluted post-IPO paid-up equity capital, then the asking price is at a P/E of around 17.34. Thus the issue appears fully priced. 

DIVIDEND POLICY:
The company paid a dividend of 1488.67% for FY20, 2098.70% for FY21, and 120% from July 01, 2022, till the filing of this offer document. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, RCMSL has shown SIS Ltd. and CMS Info as their listed peers. They are currently trading at a P/E of 57.38 and 18.54 (as of December 20, 2022). 

MERCHANT BANKERS TRACK RECORDS:
The three BRLMs associated with the offer have handled 40 public offers in the past three fiscal years (including the ongoing one), out of which 14 offers closed below the offer price on the listing date.

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