Inter-dependence of floating promoter and professional manager can jeopardize investing public’s interest.
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CMS INFO SYSTEMS OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 1,100 Cr |
| Fresh Issue | Nil |
| Offer for Sale | Rs 1,100 Cr (5,09,25,926 equity shares) |
| Face Value | Rs 10 |
| Price Band | Rs 205–216 |
| Min Quantity | 69 Nos. |
| Implied M-Cap | Rs 3,196 Cr |
| Equity Cap | Rs 148 Cr |
| Free Float | 34.41% |
| Lead Manager | Axis Capital, Dam Capital, Jefferies India and JM Financial |
| Registrar | Link Intime |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :21-Dec-2021 | Closing :23-Dec-2021 |
| Allotment :28-Dec-2021 | Refunding :29-Dec-2021 |
| Demat Credit :30-Dec-2021 | Trading :31-Dec-2021 |
The Offer
The Navi Mumbai-based CMS Info Systems Ltd is going public with an offer for sale of Rs 1,100 Cr (5,09,25,926 equity shares at the cap price). The offer is being made through the book-building route with a price band of Rs 205-216 for Rs 10 paid-up share. Applicants for the IPO should bid for a minimum quantity of 69 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Friday, December 31, 2021.
Axis Capital, DAM Capital, Jefferies India and JM Financial have been roped in as lead-managers to the offer. Link Intime will act as the registrar to the issue. The bidding opens on Tuesday, December 21, 2021 and closes on Thursday December 23, 2021.
The objects of the IPO are to carry out the `Offer for Sale’ by the selling shareholders and achieve the benefits of listing on the stock exchanges.
Lineage
CMS Info was originally incorporated as Subhiksha Realty in March 2008. The signatories to the Memorandum were Manish Jain and Sanat Upadhyay. Subsequently, founder of CMS group of companies, Ramesh Grover, became the largest shareholder. The name of the company was changed to CMS Info Systems in December 2008 and the IT infrastructure management division of CMS Computers Ltd was demerged and transferred to CMS Info under a scheme of arrangement.
Pursuant to the share subscription and shareholders agreement amongst CMS Computers Ltd, Blackstone FP Capital Partners (Mauritius) V Ltd, Ramesh Grover and certain other individuals/entities, CMS Info allotted two equity shares for every three equity or preference shares of CMS Computers Ltd as consideration of the demerger which resulted in Blackstone FP Capital Partners (Mauritius) V Ltd acquiring 56.67% shareholding of CMS Info.
In 2011 the ATM and cash management division of CMS Securitas Ltd was demerged and transferred to CMS Info and the company won a large order for ATM deployment in India from SBI, to deploy more than 7,850 ATMs in 2013. In early 2015 the IT and print division of the company was demerged and transferred to CMS IT Services Private Ltd under a scheme of arrangement.
Singapore-registered Sion Investment Holdings Pte Ltd acquired the entire shareholding of CMS Info pursuant to a share purchase agreement with Blackstone FP Capital Partners (Mauritius) V Ltd and other individuals/entities dated February 16, 2015, amended vide an amendment agreement dated August 19, 2015, an amendment and waiver agreement dated August 20, 2015 and a settlement agreement dated December 18, 2017. Thus Sion became the promoter of CMS Info whose parent is Baring Private Equity Asia GP VI Ltd which was incorporated in May 2014 under the laws of Cayman Islands. Neither Sion nor Bearing has any experience in the business of CMS Info.
Key Management
CMS Info’s board is chaired by former Deputy Governor of the RBI, Shyamala Gopinath. She has been associated with the company since November 13, 2017. The company’s executive vice chairman, whole time director and CEO, Rajiv Kaul, has been associated with the company since July 2009. He holds a bachelor’s degree in engineering specializing in computer science from Birla Institute of Technology and a post-graduate diploma in business management specializing in marketing and finance, from XLRI, Jamshedpur. He has over 24 years of experience across technology, private equity and cash management industry. Prior to his association with CMS Info, he was associated with Actis Capital LLP, London as a partner and with Microsoft Corporation (India) in the capacity of general manager and managing director, India from where he moved to Redmond, USA as senior director of emerging markets including BRIC. He was formerly a member of RBI’s Committee on Currency Movement, which was constituted post demonetization to review movement of fresh currency.
The private equity-turned-promoter is represented by Jimmy Lachmandas Mahtani and Ashish Agrawal who have been associated with the company since August 27, 2015 as non-executive directors. Mahtani has over 21 years of experience in private equity and investment banking. He has been associated with Baring Private Equity Asia since 2006 and currently serves as a managing director of private equity investment team in India.
Agrawal has over 24 years of experience in private equity and investment banking. He currently serves as the managing director of Baring Private Equity Asia, Mumbai.
Stakeholders
At present, CMS Info’s entire equity capital is held by the promoter. Post –IPO, the promoter will hold 65.59 while the public including employees will have 34.41%. As regards the stake of the professional management, Vault Co-Investment Vehicle L.P. (Vault LP), a limited liability partnership incorporated in the Cayman Islands and controlled by Baring Private Equity Asia, the ultimate promoter of Sion, has entered into an agreement dated September 26, 2017 with CMS Info’s executive vice chairman, whole-time director and CEO, Rajiv Kaul, pursuant to which he is entitled to certain options under the stock option plan of Vault LP. In terms of these options, Vault LP, were to issue certain units in Vault LP to Rajiv Kaul and upon redemption of such units, he will receive from Vault LP, all amounts received by Vault LP which will be equivalent to 0.61% of the value of CMS Info.
Vault LP has also agreed to pay certain amounts to him at the time of sale of the promoter’s shareholding in the company which amounts are linked to the value of the company and the returns made by the promoter on the sale of their shareholding in the company. This arrangement will be subject to the approval of the shareholders of the company post IPO. Beside the arrangement with Vault LP, the CEO was entitled to a remuneration of Rs 9.65 Cr for the fiscal 2021.
Business
CMS Info is claimed to be India’s largest cash management company based on number of ATM points and number of retail pick-up points as of March 31, 2021. The company’s integrated business platform is supported by customized technology and process controls, which enables the company to offer customers a wide range of tailored cash management and managed services solutions, while generating cross-selling opportunities and driving synergies and efficiencies across its business. CMS Info caters to broad set of outsourcing requirements for BFSI, organized retail and e-commerce companies in India.
The company has three business segments. The cash management value chain includes cash management services namely ATM cash management, retail cash management and cash-in-transit. The ATM managed services include white label ATM and Brown Label ATM services, banking automation product sales and services, and software and technology solutions. Cash management services, managed services and others (card personalization services) accounted for 68.6%, 27.9% and 3.5%, respectively, of the company’s revenue in fiscal 2021.
Financial Track
CMS Info has been engaged in ATM cash management related business for more than a decade. The company achieved peak revenue of Rs 1,385 Cr in fiscal 2020. Revenue dipped marginally in fiscal 2021 but, EBIDTA surged more than Rs 50 Cr to Rs 309 Cr. Net profit increased by Rs 34 Cr to Rs 170 Cr which yielded an EPS of more than Rs 11 on the company’s equity capital of Rs 148 Cr. At the end of fiscal 2021, the company’s reserves stood at Rs 836 Cr which gives a book value of more than Rs 66 for Rs 10 paid up share.
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CMS Info Systems Consolidated Financials (in Cr) |
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| Period Ended |
Aug-21 |
Mar-21 | Mar-20 |
Mar-19 |
| Months |
5 |
12 | 12 |
12 |
| Revenue |
628.11 |
1316.00 | 1385.37 |
1157.88 |
| Operating Profit |
151.48 |
303.52 | 256.03 |
209.66 |
| OPM% |
24.1 |
23.1 | 18.5 |
18.1 |
| Other Income |
1.61 |
5.92 | 2.93 |
1.44 |
| EBIDTA |
153.09 |
309.44 | 258.96 |
211.09 |
| EBIDTA % |
24.3 |
23.4 | 18.7 |
18.2 |
| Interest |
5.07 |
8.23 | 7.32 |
7.45 |
| Depreciation |
34.59 |
63.46 | 56.59 |
53.72 |
| Net Profit |
84.47 |
169.71 | 135.23 |
96 |
| Equity |
148.00 |
148.00 | 148.00 |
148.00 |
| Reserves |
911.37 |
836.48 | 702.39 |
597.9 |
| Fixed Assets |
397.3 |
352.9 | 226.7 |
180.6 |
Valuation
Though CMS Info has a relatively large equity base, its operating performance compares reasonably well with its unlisted peers. AGS Transact has higher revenue and operating margin but large interest burden drags its bottom line. Radiant’s operating scale may be small but its net margin is higher than CMS Info.
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HOW CMS INFO COMPARES FINANCIALLY WITH PEERS |
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(Amount in Cr) |
CMS Info |
SIS | AGS Transact |
Radiant Cash |
| Revenue |
1316 |
9485 | 1759 |
222 |
| Other Income |
6 |
120 | 38 |
2 |
| EBIDTA |
309 |
723 | 475 |
50 |
| Interest |
8 |
127 | 133 |
2 |
| Net Profit |
170 |
367 | 59 |
33 |
| Equity Cap |
148 |
73 | 119 |
1 |
| Reserves |
911 |
1757 | 440 |
108 |
| EBIDTA % |
23.4 |
7.5 | 26.4 |
22.3 |
| OPM % |
23.1 |
9.3 | 24.9 |
21.3 |
| Net Margin % |
12.8 |
3.9 | 3.3 |
14.5 |
| RONW % |
16.0 |
20.1 | 10.6 |
29.8 |
| ROCE % |
23.2 |
20.4 | 13.6 |
39.6 |
CMS Info compares itself with SIS Ltd for price justification. CMS’ cap price of Rs 216 discounts its fiscal 2021 net earnings about 18 times, cash earnings around 14 times, book value 3 times and EBIDTA 10 times which are almost on par with SIS. However, SIS being predominantly a staff solution provider, its profit margin is very low as compared to CMS Info.
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LISTED PEER COMPARISON |
CMS Info |
SIS |
| Market Cap (Cr) |
3197 |
6577 |
| Current Price (Rs) |
216 |
448 |
| Face Value (Rs) |
10 |
5 |
| Book Value |
71.58 |
124.61 |
| Promoter Stake % |
65.59 |
72.81 |
| Cash EPS (Rs) |
15.75 |
32.58 |
| Earnings Per Share (Rs) |
11.47 |
24.88 |
| CAGR 2Yr Revenue % |
7.2 |
15.6 |
| CAGR 2Yr EBIDTA % |
21.1 |
39.9 |
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Discounting |
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| Price/Earnings |
18.8 |
18.0 |
| Price/Cash EPS |
13.7 |
13.8 |
| Price/Book Value |
3.0 |
3.6 |
| Price/EBIDTA |
10.3 |
9.1 |
| Price/Revenue |
2.4 |
0.7 |
| Price/Fixed Assets |
9.1 |
15.1 |
Concern
- Private Equities are considered as floating promoters who can exit the company at will any time after the lock-in period.
- Promoter’s residual cost of holding being only Rs 72.75 as against the public cost of Rs 216, private equity turned promoter can easily opt for exit at a price much lower than the IPO price.
- Professional management (whole-time director and CEO) is bound to favor the promoter rather than the investing public as his perks are to be ratified by the majority stake holder.