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CMS Info Systems IPO: opens today, Should you subscribe or avoid?

December 21, 2021 02:23 PM

CMS Info Systems IPO opens today, Should you subscribe or avoid
The allotment of CMS Info IPO will be decided by December 28, unsuccessful investors will get refunds by December 29, and successful bidders will get shares credited to their demat accounts by December 30.

CMS Info Systems Limited (CMS) will float its Rs 1,100-crore public issue (IPO)  on December 21. The offer will close on Thursday.

CMS is one of the largest ATM cash management companies worldwide based on the number of ATM points as of March 31, 2021. For the financial year 2020-21, the company’s total currency throughput, or the total value of the currency passing through all of their ATM and retail cash management businesses, amounted to Rs 9.2 lakh crore (Rs 9.2 trillion).

The country’s largest cash management company, based on the number of ATM and retail pick-up points, is engaged in installing, maintaining, and managing assets and technology solutions for banks, financial institutions, organized retail and e-commerce companies in India.

The company operates in three segments which are cash management services (68.6 percent of 2020-21 revenues), managed services, which includes banking automation products, common control systems, and software solutions (27.9 percent), and others such as financial cards issuance for banks and card personalization services (3.5 percent).

As of August 31, 2021, CMS had a network of 3,965 cash vans and 238 branches and offices to cover all Indian states and Union Territories.

Features of the Issue

The Rs 1,100-crore CMS  Info IPOis a complete offer-for-sale by promoter Sion Investment Holdings Pte Limited which currently holds 100 percent of the company. After the issue, the promoter shareholding will come down to 65.59 percent.

The shares with a face value of Rs 10 each will be offered at Rs 205-216 apiece.

Investors can bid for a minimum of 69 equity shares and in multiples of 69 shares thereafter. Retail investors can invest a minimum of Rs 14,904 for one lot, and their maximum investment is Rs 1,93,752 for 13 lots.

The allotment of CMS Info IPO will be decided by December 28, unsuccessful investors will get refunds by December 29, and successful bidders will get shares credited to their demat accounts by December 30.

Shares of CMS Info Systems will list on the BSE and the National Stock Exchange on December 31.

The company will use the proceeds from the issue to carry out an offer-for-sale of equity shares by promoters and to achieve the benefits of listing the equity shares on the stock exchanges.

Brokerage Views

Majority of the brokerages hold a positive view about the company and assign a ‘subscribe’ rating to its IPO based on the outlook of the business, its strong product portfolio, integrated business platform, its long-standing customer relationships and its track record of strong productivity and operational excellence.

Unfavourable government policies and regulations, decline in the financial position of the banks, thereby affecting the expansion of the ATM network and outsourcing activities, sustained cost inflation and competition are some of the risks faced by the company, said Choice Broking in its review report.

On the valuation part, the brokerage said that at a higher price band of Rs 216, CMS Info IPO is demanding a P/E multiple of 19x (to its FY21 earning of Rs 11.4), which is in line with the multiple of sole listed peer. “Considering the continued vital role of the cash in the domestic economy and the company’s diversified product portfolio across the cash management value chain coupled with its dominant market position in the sector, we assign a ‘subscribe’ rating for the issue,” it said.

Also Read : CMS Info Systems IPO : Issue Date, Price, GMP, Subscription, Share analysis and allotment

“The company derives a substantial portion of its revenue from a limited number of customers, if they substantially reduce its dealings with the company, their revenues could decline, which may have an adverse effect on the business, results of operations, cash flows and financial condition,” said Marwadi Financial Services in its report, highlighting the risks to the business.

Also, the business is highly dependent on the banking sector in India and any adverse development with respect to Indian banks could have an adverse effect on the business, results of operations, cash flows and financial condition.

Considering the FY-21 adjusted EPS of Rs 11.1 on post-issue basis, the company is going to list at a P/E of 19.5 with a market cap of Rs 3,197 crore, while its peer like SIS Limited, is trading at a P/E of 19.7, said the brokerage in its report about valuations of the company.

It advises investors to ‘subscribe’ to the issue as it is available at a reasonable valuation compared to its peer and the company is India’s largest in its space with a pan-India footprint and deep penetration in growing markets.

Brokerage firm KR Choksey suggests that the sustainability of the company’s largest business segment faces the risks from an increase in cashless transactions and increased usage of digital currency, all new Neo Banks that deliver services to their customers only through digital media and risks due to uncertainty related to laws pertaining to digital currency.

“Considering the fact that the entire issue is offer-for-sale, which means existing promoters are selling their stake and no money will come into the company for its business need, makes us little uncomfortable about the reason and timing for the issue,” said the brokerage.

However, we are comfortable on the valuation front and about the medium-term outlook on the business as increase in velocity of physical currency in circulation is a sweet music for the company, it said, advising the investors to “subscribe to the issue for listing gains”.

Angel One, however, is ‘neutral’ about the issue, given the company’s dependence on a single sector, high client concentration and possible impact on business due to a third Covid wave.

Anchor Investors

The company on December 20 garnered Rs 330 crore from 12 anchor investors. It finalised allocation of 1,52,77,777 equity shares to anchor investors, at a price of Rs 216 per piece.

Investors through the anchor book included ICICI Prudential, Nomura India, SBI Mutual Fund, WF Asian Reconnaissance Fund, Aditya Birla Sun Life, Goldmans Sachs, SBI Life Insurance, Abakkus Emerging Opportunities Fund, Theleme India Master Fund and BNP Paribas Arbitrage.

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