CMS Info Systems Limited (CMSINFO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of CMS Info Systems Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dhiral Shah from PhillipCapital. Thank you, and over to you, sir.

Thank you, Jakob. Good afternoon, all. Thank you for joining us on the Q1 FY '23 Post Earnings Conference Call of CMS Info Systems Limited. First of all, heartly congratulations to the management for the great set of Q1 numbers. We sincerely thank the management to allow us to host the call. In the panel today, we have Mr. Rajiv Kaul, Executive Vice Chairman, Whole-Time Director and CEO of the company; Mr. Pankaj Khandelwal, President and CFO of the company; Mr. Anush Raghavan, President of Cash Management; and Mr. Manjunath Rao, President of Managed Service. I now invite Mr. Rajiv Kaul to begin the proceeding of the call. Thank you, and over to you, sir.

Thank you, Dhiral. Good evening, everybody. I hope you can hear me clearly. Thanks for attending our Q1 call. Before I dive into our performance, I want to share a couple of high-level sectoral macro trends, which are quite positive towards cash usage. Usually, Q1 is a softer quarter after a strong Q4 in the financial year as we noticed. This year, Q1 over Q4 on a quarter-on-quarter basis, the cash in circulation has grown at 2.5%. And even when you look at the data on the monthly cash withdrawals and the ATM channel, that's grown at a 6% quarter-on-quarter levels. So I think that's very good, healthy macro level data, I thought I'll leave for you to digest. And now let me just dive into the company. I'm very happy to say that we've been able to continue our momentum over the past year. And despite a fairly inflationary environment, we have still had our best and strongest quarter till date on all important metrics of revenue, EBITDA and PAT. On a year-on-year basis, our revenue has grown by 23% to INR 453 crores. Our -- specifically our annuity revenue stream, which is something which you should pay attention to and track us on, has grown at a 38% year-on-year level. And our PAT has grown at 47%, which is a reflection of both the volume increase of our business and activities we do, the operating leverage in the business of our logistics...

We lost the line for the management. Please hold while we reconnect. Ladies and gentlemen, we have the line for management reconnected. Thank you, and over to you, sir.

Okay. Well, I'm sorry for the disconnection in the line. I will just repeat the last line, hopefully, where I got disconnected. I wanted to explain that the result is -- I want to commend our team for very strong execution, focus on very high-quality service to our clients. And our operating performance has been robust across all our business lines and product units. So it's an all-round good quality performance from -- across the team. The one thing I want to sort of highlight here specifically is our youngest and, let's say, the smallest business, which is our Remote Monitoring business, which we started in COVID is doing very well from -- you will remember that we've talked about an order book of 25,000 ATM sites. We have gone live on 15,000 of that. So we've executed 60% of the contracts already. This is a tough one because the supply chain issues of components here is quite a tough challenge to circumvent. But more importantly, we have been able to, in a very quick time, take our solution capability beyond ATMs, and we have already had very good proof points in the BFSI sector and started winning orders with our solutions for bank branches, bank vaults and even gold loan vaults. And we've got some very good client names and references when we started executing work -- sorry, we've won the work and we're starting to execute that now. I'm going to now request our CFO, Pankaj, to take us through the high-level financial highlights.

Thank you, Rajiv, and good evening, everyone. I will take you through the financial performance for the quarter. Revenue from the operation stood at INR 453 crores, which grew by 23% on a year-on-year basis. The net profit was INR 69 crores, which grew by 47% on a year-on-year basis. PAT margin has expanded to 15.2% by 250 basis points between Q1 FY '22 and FY '23. Our strong performance is on account of increase in volume of the cash activities and increased mix of the tech services. Talking about the segmental results. Our both major business segments recorded very strong growth. Cash Management business recorded year-on-year revenue growth of 29% to INR 313 crores and EBIT growth of 44% to INR 77 crores. Managed Services business recorded year-on-year revenue growth of 16% to INR 146 crores and EBIT growth of 53% to INR 30 crores. In our Managed Services business, if you remove the product sale component, the services grew year-on-year by 71%. With this, I now hand over the call to Mr. Anush Raghavan, President, Cash Management, for more insight into Cash Management business performance.

Thank you, Pankaj, and good evening to everybody on this call. First of all, I'm pleased to share that all our 3 business lines across the cash vertical, namely the ATM Cash Management, retail cash and the currency-in-transit businesses have all demonstrated very strong growth. Overall, from a macro perspective, we continue to see very strong trends across cash usage in India. Across the India's ATM network, we have seen a 6% increase over the last quarter in terms of the total currency dispensed. The total currency, which is handled by the CMS team grew by 38% year-on-year and has been the highest ever in the history of the company. We continue to invest to expand our reach and presence. And as on date, we cover more than 16,000 pin codes across India. On today's call, let me also take the opportunity to share some more details to you in terms of what we are doing on the retail business. We have seen strong traction in sectors which were hitherto affected with the COVID headwinds, namely organized retail, travel, hospitality and entertainment has seen some very interesting trends in terms of bounce back post-COVID. Here, our cash volumes are up by 22% on a year-on-year basis. Further on the back of this recovery and given the broader opportunity in the retail landscape, we have been investing to create an end-to-end offering, which brings together many different parts of the CMS solution set from our product automation to Remote Monitoring and Cash Management. To the retail segment, we offer an automation-based solution, which takes care of their reconciliation, cash management and treasury processes. We have seen very good traction over the last few months and have today fully built up an order book from customers across fuel outlets, large organized retail players, NBFCs and airlines. Going forward, we will keep you updated as this business develops. I would now request my colleague, Manjunath, to share with you an update on the Managed Services business.

Thank you, Anush. Good evening, everybody. On the Managed Services business, I'm very pleased to inform you that we have successfully completed execution of our SBI BLA order book ahead of time and are seeing very healthy transaction trends on the same. Our BLA estate has crossed now 5,500 units as of June '22. Our Remote Monitoring SaaS business is growing rapidly with 15,000 ATM sites live, and we have further expanded our Remote Monitoring SaaS solution capability to new areas like branches, vaults and have won contracts with leading private banks and gold loan companies covering close to 1,000 branches. For our Managed Services business and SaaS business, we have set up a new state-of-the-art tech center that is CERT-IN certified and has a 3x capacity of the old center. I'm also happy to announce that we have received ISO 9000:2015 quality certificate for application and software development for banks and financial institutions. With this, I will hand this over to Rajiv to do his closing comments.

Okay. So I think I don't have really much to say. I think our focus remains on executing strongly and continuing our momentum. I -- before listening and during our earlier calls, we've sort of given a guidance saying that our company revenue in FY '21 was roughly INR 1,300 crores. Our goal remains to double that to roughly INR 2,500 crores to INR 2,700 crores by FY '25. We are on track to hit those numbers. We had -- we started FY '22 well. FY '23 has also started off well. And with the good wishes and luck, hopefully, we'll get to that number soon. In addition, I think this is an important year. It's an early stage right now, but it's still in disclosure, I just want to share that as part of our efforts to look for newer revenue streams to grow in the country, and this is really keeping an eye on FY '25 to FY '30, we are also kickstarting incubating efforts beyond our businesses of Cash Management and Managed Services. These are mostly going to be efforts initially, which will be done ground up within the firm. And as we learn and see what sticks and what works, we will then look at how we can scale these businesses. Very early days, but that's an area where we have already have shared that we'll start investing our time, effort -- management time, effort and resources. And FY '23, I think maybe by the time we have an analyst meeting, we'll be able to give you a little better update on how these efforts are going to look like. Thank you so much. I'll be happy to take any questions now.

[Operator Instructions] The first question is from the line of Aasim Bharde from DAM Capital Advisors Limited.

Good results and congratulations to the CMS team. I had a couple of questions. So first one on the Cash Management business. Can you break out that how much of the growth is through new touch points and how much would be just pure compliance-driven pricing-led growth?

Aasim, that number is -- I don't think it's relevant to track on a quarterly basis. I think it's better to -- more useful to see on a year-on-year basis because there will be -- it will move up and down. I think we would have given last year, we had -- when we did the numbers, we talked about an equal split between volume, which is business points and pricing impact. It was almost an equal split in our numbers at the revenue line. And I think at the profit line also, I think between operations -- operation leverage, I think we had explained that in the last call. Right now, I think Q1 basis would be -- would not be the right way to sort of track that number. We'll wait for at least 6, 9 months to give you a sense of the breakup.

Okay. But for FY '23 as a whole, basically, we can still assume that 50% of the expected growth should come from unit additions, right, if I got you correctly.

So I think I'll tell you what we remember on compliance, what we have indicated, right? Compliance, we have said a couple of things before, which is we expect compliances to finish by FY '24. At the end of FY '22, we were roughly 35% of our points were compliant in terms of earning compliance revenues. That should hopefully get to 60%, 65% by FY '23 and 100% by FY '24. We have indicated towards an 18% growth rate CAGR over these years in our business. And I think we are on track for that right now. And I would -- for the sake of your question, I would think it is wise to maybe take a 50-50 split between volume and compliance or other pricing initiatives. It's just our compliance, right? There is inflation price and whatnot. So pricing and volume, I think you should take a 50-50 sort of a mix.

Sure, sure. Got that. And secondly, just rather clarification. I think in your opening remarks, you mentioned about annuity revenue has grown 38% Y-o-Y, while Pankaj mentioned that excluding products, MS revenue grew 71%. So the annuity portion that you talked about, that doesn't include BLA and Remote Monitoring, right?

No, no. So annuity for me, I was talking at a company level, which is both cash management and managed services are all of our businesses. And I think Pankaj is referenced more specifically to explain to you in the MSBU segment, if you are to think of it.

Okay. Okay. And what would be the pipeline in hand currently on both BLA and Remote Monitoring?

So remote monitoring, we -- I talked about the fact that we had an order book of 25,000 sites, Manju, right? And out of which 15,000 is executed. We've also got incrementally an order book of another 1,000 sites, which is not ATMs, but that is on the bank branches and vaults. That's where we are. BLA, we have executed almost 95% of the order book. It's already up and running. Yes.

And I mean, in terms of a number, could you be able to share that what kind of visibility do you have in terms of adding over the next, say, maybe over the next 24 months from now?

So if you just -- Aasim, go back to what we have said before we listed or around that time, we had an order book of roughly INR 2,000 crores. End of March quarter, again, I don't want to make this a quarterly habit because we are not L&T. But end of March quarter, we were -- or full year FY '22, we had an order book of INR 2,200 crores. That order book is growing, is growing healthily. And that was your question, number one. Number second question you asked me is what, sorry, if you can repeat?

No. Basically, I just wanted to get a sense that like one thing on the BLA side, for example, one thing would be basically ATM orders in hand. And secondly, the kind of visibility that you may be open to bid for. So...

Yes. So I think BLA, we are -- right now, we are -- have a BLA estate of about 5,500 machines. We are fairly conservative on the BLA business. We, I think, are looking at adding about 1,000 machines a year, provided we can find an estate with the revenue and profit metric, which makes sense to our capital allocation. So that's where we would stand. The business obviously doesn't come in bits and pieces. You will like -- if you are able to win a good quality order, it may be a little more or a little less. But from a directional perspective, we think we'll be adding about an average 1,000 BLA machines a year.

Got it. Got it. And just lastly, this incubation that you just talked about at the end of your opening commentary, any -- like any sense that you would want to give which segments are you really looking for?

So I think, again, whatever we were highlighting during our roadshows, I think these are the sectors which are broadly around collections to create infrastructure around collections mechanisms in India, both from logistics and technology side. That remains an area of interest where we want to start accelerating the work and start investing time and resources. We are also looking at -- so this will be more homegrown and insight. I think from an investment perspective, we continue to look for opportunities in B2B payments and in the whole Remote Monitoring side to see if we can find opportunities to invest in good upcoming technology companies there.

The next question is from the line of Achal Lohade from JM Financial.

Congratulations for the great set of numbers. My question was you talked about the CIC growth, 2.5% Q-o-Q and 6% growth in terms of the ATM cash withdrawal or cash handling by ATMs. Would it be possible against the 6% Q-o-Q for the industry, how would our cash handling growth would have been?

Sure. This is Anush here. So that number, Achal, would be between around 4% to 5% for us. So when you sort of compare Q1 to Q4 cash handled by CMS would be a 4% to 5% growth.

Understood. The second question I had with respect to the margin. Now I see that given the cost inflation, we have done extremely well. Is it possible to get some more color in terms of what kind of cost inflation have we seen? And have we been able to pass on that cost or it's the compliance-driven pricing, which is taking care of these costs?

I think it's a mix. When you think of it, inflation pressures are both obviously in wages and fuel for a company like us and some raw materials or some input costs. I think for us, the fact that we've been able to -- and this was a question which came in last quarter as a potential concern. And as a team, I think we've again dealt with inflation or high inflation environments before. We're trying our best to manage that. What you see is a mix of the volume of business increasing and therefore, operating leverage impact. Our pricing changes, which are not only limited to compliance and sort of even to the earlier question, Aasim's question, I just want people to know that there is compliance-related pricing increase in some part of the estate, but there's also businesses where we are -- where annual increases or inflation-linked increases are being either discussed or closed out. So you see that benefit of that. And that's what you're seeing translate into the P&L in front of you. Last point I think I did say this in my comments is that part of the reason of our overall margin increase, which you also see here is the fact that our -- a large part of the revenue in Q1 is annuity and services revenue overall, right? The product linked revenue is lesser, and that has a margin impact automatically, but we have still grown the overall numbers well.

Got it. And just one more question I had. Is it possible to get some more color in terms of the number of touch points for the cash business? What is the growth Q-o-Q or Y-o-Y?

I think we are roughly about 115,000 touch points. But again, I tell people, this is not a number you should see every quarter. I think this is more at least a 6-, 12-month basis is a number to sort of track on because many times, there will be some shifts on contracts between banks, and therefore, a quarterly number is not the best way to keep worrying about this. But 115,000 is roughly the number of points you remember that we have.

Understood. And any color you can give on the replacement/the new ATM deployment by the industry or by the banks. If you could talk about any developments you could highlight?

So we -- in our May call, when we had finished the full year, we talked about that last year, the ATM installed base in India grew by close to 10,000 units. It's only a couple of months to then. So nothing significant to report at this stage. And also the RBI data hasn't come out for the month of June yet. Again, this is a number which you want to track more on an annual basis than a quarterly basis. But to your second question on the replacement cycle or expansion cycle, there are large RFPs either underway in the process of getting bid or closed or RFPs coming out in the -- but we feel that this will get bunched towards the second half of the year -- for the large public sector banks.

The next question is from the line of [ Sanjay Awatramani ] from Envision Capital.

Sir, I wanted to know that if you can highlight the unit economics for the Brown label ATMs which we install.

So generally, the Brown label ATMs, we have a threshold of our IRR. And we generally go for -- that's the reason Rajiv has mentioned that we are looking only for 1,000 ATMs, BLA ATMs in a year. So we ensure that our threshold IRR is met for any sort of BLA or CapEx-driven investment. It is very difficult for us to give you some sense of the unit economics in this call.

But are you trying to ask what are the cost elements of the business? Or you are saying what is our targets in this business? I wasn't very clear on the question, actually.

Sir, basically, I was asking about the cost per se itself because as you mentioned that yearly, you will be moving ahead with roughly in the range of 1,000 installation of ATMs or replacement of ATMs. So I was asking perspective on the cost basis, sir.

Yes. So I think our estimate is that basis the 5,000, 5,500 machines we've been running now, our estimate is that basis the investment required for a Brown label ATM, I think we are -- our IRRs are in the high teens number. That's post-tax IRR. That's what we target in an ATM. Again, in prior calls, we have explained our strategy. We think in a year -- in any given year between 10,000 to 20,000-odd ATMs could get contracted out for BLA. We are focused on only the high-quality, high-yield, high transacting ATMs, which are for this largest banks you know of in the country. Our current estate of 5,500 ATMs is almost got 65% to 70% of that is with SBI.

The next question is from the line of [ Nitin Khandkarr ], an individual investor.

My first question is about the industry size relative to its counterpart in the Western world. So when we look at the U.S., the top 4 companies account for revenue of, I guess, about $18 billion annually, which includes some revenue from Europe as well. I believe the size of the industry in India is about $2 billion. So in the context of India's GDP relative to the GDP of the U.S., I believe the Indian industry could outpace its U.S. counterpart over the next few years. What is your estimate of the industry size in India? And what would be our strategy to outperform the industry in India going ahead?

So Nitin, our estimate on -- when you look at the market data for India, let me talk about that before we think global. Roughly, the TAM for this market in 2021 was about INR 8,000 crores, INR 8,500 crores, right? And now when I talk about that, that includes everything from automation to managed services, ground level deployments, white label market, cash management and also remote monitoring. The industry estimate on this is that this TAM is likely to become a INR 20,000 crores, INR 21,000 crore market by FY '27. So that -- I won't say billions of dollars given how devaluation is happening, I prefer to talk rupees because that's what we are working in. Now that's the size. India is a reasonably cost-effective or value-focused market. So I think we -- and also because of volume, and we are the world's third or fourth largest ATM market in the world. So I think there is pretty healthy competition. and prices are pretty aggressive given just the market conditions. So that's why I could give you some sense to help you understand the market and the market direction possibly based on industry estimates. As a company for us, basis the current lines of business we have, we have set out with a goal to double our business in 4 years from FY '21 to '25.

Okay. So what would be our specific strategies, if you could throw some color on that, please?

So our -- we were predominantly a cash management company until FY '15 post which we started expanding into all adjacencies when we are selling to banks starting from automation solutions, software for the ATM networks, remote monitoring services at ATM sites and bank branches, the Brown label deployments. Our approach here is that we were a service provider until FY '15, and we want to become more of a solutions company offering end-to-end solutions, which encompass both logistics and technology solutions, help serve the banks because they've got a very distributed network in the country, and they don't find people like CMS who can handle this for them and move up the value chain by giving them a mix of services, both on logistics as on the technology side. So our quality of service, our network, our reach, our integrated capabilities are already resulting us in delivering the best quality services to banks. Now this is a very difficult measure to measure, but it's been actually fine that we've had some of our customers, in fact, from internationally and large -- from U.S. and all saying, why don't you come and start services here because we don't find companies with your capabilities or quality of service. So that's the approach, keep high-quality cost -- high-quality services, have a fantastic network to offer this so that customers come to you before they go to somebody else, use the economies of scale and operating leverage to be able to make a higher margin than anybody else and also run very tight operations with high automation to run -- to deliver a lowest unit cost and therefore, maintain our margin profile. I'm sorry, it's a very large presentation, but I'm trying to give you a summary answer.

That's helpful. Secondly, based on the consolidated data, EBITDA margin in Q1 is the highest in the last 7 quarters at least. How would you comment on the variable versus fixed components of the OpEx? A small part of the EBITDA expansion is attributable to your company's vehicle maintenance costs, which after peaking at 10.3% of revenue in Q2 FY '22 has tapered off to 9.3% and 8.6% in the last 2 quarters. This is in spite of the fact that the prices of fuel have been high since March itself after the Ukraine war broke out. So how would you comment on this particular line item and on the overall margin profile?

Sure. Nitin, let me take that, Anush here. I think over the last couple of calls and even during the roadshows and in some of our presentations, you would see that, we've sort of invested a fair bit of effort in bringing the technology that we deploy to manage our routes. And I'm speaking on the cash business because that's where a lot of the fixed and variable costs get associated in just being able to do a far better quality of throughput in terms of the route management, the predictive analysis around productivity and just getting better control of that fixed cost. And in COVID, we were sort of able to really reap the benefits of being able to deploy the technology and get automation happening. There's also a lot of automation that has been implemented and various other things which are in process of implementation for some of the manual processes, be it things like ATM reporting, cash processing, for instance. So I think that, combined with the synergistic benefits of certain scale and when we grow, it helps us to sort of achieve to some extent, a certain nonlinearity of margin profile. With respect to the observation in terms of the margins, I must tell you that, yes, first quarter has been the best. And like you rightly said, it comes in the perspective of the inflationary headwinds being the most severe. We've, in fact, incurred expenses in the first quarter of also a wage review across board for the cash business. So that's sort of already baked in there. With respect to the maintenance expenses, I think, again, we, over the last year and even this year, deployed a significant capital to do a refresh of our fleet, partly driven by compliance and partly driven by the fact that new vehicles help us achieve better efficiency. And to some extent, it has also helped us reduce the maintenance cost as well as reduce a little bit of our hiring expenses. So that's probably what you're seeing there.

I mean I think net-net, it is a lot to do. Whatever improvement you see is it takes a lot of effort on the ground by our field teams to monitor and track a lot of our internal automation, which we don't sell to anyone else, is really about running and improving how tightly we run our operations and to prevent any leakages. I think some of that benefit is -- has been part of the reason why our margin profile is different compared to our competitors and how we try and maintain and run the company.

[Operator Instructions] The next question is from the line of Ravi Naredi from Naredi Investment.

Sir, how much cash available in system by RBI? And how much higher than last year?

I think -- so just give me a moment. As of May or June, the total currency in circulation by the RBI was INR 32 lakh crores, which compared to March ending, I think, was INR 31 lakh crores. So about an incremental INR 1 lakh crore or INR 1 trillion in circulation in this quarter.

Okay. And how we reduce the risk, everything insured or anything nuisance happened and our cash went within quarter 1?

So I think the nature of business is the fact that there will be -- there is risk, and that's why we work with the -- banks work with companies like us to manage the risk well. It is part and parcel of our costs. So I think from a revenue perspective, almost 4% to 6% of the revenue is what goes towards risk costs, which could be theft, robbery, insurance, pilferages, whatnot. So I think keeping that tight and running that is -- we have a large team. We have almost 150 to 200 people basis auditors and security advisers who are working across the country to keep these incidents under control.

Right, right. And this elevated net profit margin, 15.2% in quarter 1 will sustain in current year or may be higher?

From our side, we've -- what we've guided towards is the fact that we have ambitious revenue growth goals, which CAGR to an average of 18% CAGR we want to achieve. I think we should be able to maintain margins from -- like I said, from FY '21 to FY '25 basis. Very difficult to comment quarter-by-quarter exactly what will happen to margins. But we have done well. I think last year, we finished the year with 14.6% margin for the full year. And the PAT margin has expanded Q4 to Q1. We will try our best to maintain our profit levels.

Okay. And this 18% growth we are hoping for next few years?

So FY '21, we were a INR 1,300 crore company roughly. Our target for FY '25 is between INR 2,500 crores to INR 2,700 crores. [Foreign Language] so that becomes a double 2x in 4 years, which is roughly 18% CAGR. FY '22, we had a 22% growth. And we -- but I think from a guidance perspective, I think that 18% CAGR from this base is what we would like to guide you towards.

Okay. And last CapEx plan for current financial year.

So in the last call, we have given a sense that we are expecting that INR 225 crores of CapEx. So for the execution of the orders, whatever orders in hand. And we are in this quarter also in line with investing accordingly in that line.

The next question is from the line of Jigar Valia from Ohm Group.

We would want to understand with regards to the employee cost. And generally, all the 20,000 plus, including the drivers, et cetera, for the 4,000 vans, these would all be on board? Or do we have contract staff as well? And would want to understand typically on the attrition and normal staff inflation that you kind of generally see year-on-year?

Anush here. So with respect to your first question, we -- typically, we outsource the roles of drivers and security services. We don't have -- we have generally very few drivers and no security services on our payroll. We typically work through our partners or vendors for these services. So to those extent, it would be a contractual staffing. Rest of the team which handles the cash operations, including the back office and the field would be, in some cases, on our payroll or in some cases, we work with various staffing agencies. You had a second question on attrition and inflation. So yes, I think over the -- when you sort of look at it over the last few quarters, the attritionary trends have been a headwind for us as it is for the industry and overall India. We've sort of been trying to -- if you look at the overall numbers, I think our attrition, which used to be in the range of low 20s is right now trending towards high 20s percentages. We have enough HR team and people function working with different skill development agencies to try and see how do we counter some of these attritionary pressures and make sure -- the focus for us is to make sure that we continue to maintain high levels of serviceability, high uptimes and high quality of operations. And so I don't want to get that affected. And so far, we are keeping a high threshold on that. You had a question, I think, on the inflation aspect. Could you just detail that, please?

Yes. I mean, generally, with this attrition or normally for the type of staff that you have, typically, what is the inflation that you kind of see, I mean, in the past or maybe going ahead? These would be double-digit inflation for...

No, no, not double digit. I think it's linked to multiple things. It's linked to certain -- the government wages and how they get revised. It's fairly -- I don't think there's a simplistic answer to how it gets done. But I think you should assume it -- typically, it's in the range of about 5% to 7%.

And including the contract staff, what would be the total number of labor involved in the business? Overall employees involved in the business?

We have team members -- roughly 23,000 team members.

So this is including the outsourced?

Yes, it all including all employees, associates, vendors.

[Operator Instructions] The next question is from the line of Nirmal Bari from Sameeksha Capital Private Limited.

Congrats on the very good set of numbers. My call dropped in between, so probably my question might be repeated. But you said that we have about 35% compliance at present and it would move to 65% by the end of the year. So if you can break it up between what is the level of network compliance and what is the level of compliance on cassette swap at present? And where do we expect it by end of year?

Sure. So I think like Rajiv was mentioning on the call, we sort of track -- it's, I think, more appropriate to track this percentage and a development on an annual basis than breaking it up down into quarter. Rest assure, I think broadly, when we say we would like to move from 35% as of last year-end to 65%, it will sort of happen in a smooth manner. There is not really too much of a lumpiness to this, partly because there is a certain just time of execution, right, buying the vehicles, getting the infrastructure ready, deploying them on the ground. So it should sort of fall into that broad trend line. Again, when we refer to this compliance, it's still more to do with the base RBI and MHA compliance. On the cassette swap, I think that is the project which generally is lagging behind the overall compliance given the fact that the infrastructure requirement and the upgrades needed by the banks in terms of some of the hardware procurement has a certain lead time. The RBI has given a mandate to all the banks that they should be completing this project by March 2023. So many of these banks are in discussion with us. And we think that implementation of that compliance should accelerate through this year.

And would it be fair to assume that a significant proportion of price increase that we are looking at from the compliance angle that would happen when this cassette swap compliance comes in?

No, I think the compliance is very complex. I don't think you can break it down to these numbers on a simple basis. Compliance has got network upgradation costs, which is your vaults, which is your vans, it is your security, it is also training. So I think that we indicated in May that we were at a 50% compliance level by May as a company, and we are trying to get to 70%, 80% compliance by the end of this year. From a cassette swap perspective, again, if you take the specific of what will cost -- sorry, what would a cash management company earn on a cassette swap basis. Forget the profit, this is the revenue. I would think that on a blended basis, it would be on the -- everything you do for ATM from cash management, compliance, cassette swap, I think it will be roughly a 10% of the total revenue. From an overall compliance level, it may be a 20%, 25% of the revenue. Now the banks need to invest. The banks need to source the cassettes for their installed base of ATMs. So I think that is where there are choke points or supply side constraints because India, as I said, is the world's third largest ATM market. You can't overnight go and start buying so many cassettes landing up in the country. So that's the area which is -- only area which is going slow. Otherwise, I think both from the regulator perspective and CMS as the largest company sector, I think we're moving along quite rapidly.

Okay. My second question is, you said at the beginning of the call that it's important to look at the annuity revenue. So of the total revenue that we had, how do we segregate annuity revenue and the rest of the onetime product sales related revenue? What was it for the current quarter and the previous year itself?

Sure. So at a management level, we have 3 levels of revenue. We have product sale, we have annuity. We also have something we call recurring, right? But for the sake of simplicity and not confusing people, annuity, let's assume annuity is both annuity plus recurring. We -- in FY '22, our overall revenue, our annuity revenue would have been 92% of our revenues. And that seasonally right now in Q1 is at 97%. But that obviously, product sales is -- and automation, these are not seasonal, but they can get bunched up into certain quarters depending on order cycle, supply cycle, installation cycles.

Okay. And second question -- sorry, the other question was on our Managed Services book. So now that we have executed almost 95% of the order book there, for the current year, would the revenues kind of stagnate at the current quarterly level? Or if there would be growth, what would be the triggers for growth in that?

That's a good question. But let me just use your last question to help explain a little better of where we are and where we are coming from for the sake of knowledge for you and your other colleagues here. If I had to think back 5 to 6 years ago, the product or the onetime revenue type business in our revenue may have been close to a 30%, 35% of our revenue. That's now down to a single-digit number. Now again, we have nothing against that business. It just depends upon the volume of business and the margin profile. So I think the idea is to make sure that we have a more smoother annuity type revenue, which is more predictable, both from revenue and also from planning your network and costs and how you plan for growth. Second question on the order book. Before I go to the order book, I will again go back and say and repeat it one more time that our goal is on a 4-year basis to achieve 18% sort of CAGR revenue. If you take that 18% CAGR revenue as a goal for this year, we have done x percentage of that of the first quarter. And then therefore, it means we would hope to grow at a particular rate, roughly 4% every quarter-on-quarter to get to a number for our internal target for this year. So quarterly, obviously, we are looking at that growth on a Q-on-Q basis and therefore, 18% on a Y-o-Y basis. Q1 is very solid. We have -- as I was telling other people in the day, we still have 9 months of the year to finish. From an order book perspective, we have -- from a current order book of INR 2,500 crores, almost INR 1,900 crores is executed. Now to your specific short-term question between last year to this year or this quarter, I would say that you would see healthy growth because we started to execute the order book last year. We got some revenue recognition of that last year. We will get a much larger one this year. Even next year, we should see this grow very healthily. But this is not -- this is at a point in time. There are RFPs which are expected to come, whether we win or lose, we don't know. But depending on our win rate, I think we should be able to -- our target again is to be able to keep growing our business at an 18% CAGR in the foreseeable future, and that's how we would do. Last 3 to 4 months, we have won RFPs worth INR 250 crores already.

The next question is from the line of Amit Chandra from HDFC Securities.

So my question is more on the -- from the competition side. So maybe if you can throw some light on what kind of competition you're seeing maybe in the automation business or in the managed services or in the cash management, particularly from the majors like Hitachi, Euronet or AGS or SIS. So is there any increased competition that you're seeing in the market?

So if you look at the overall industry, you've given some of the names, and these are leaders and all their rights in their specific industries. CMS is one more unique players, which cuts across all the product lines, whether it's cash management, remote monitoring, managed services, automation, software. So we would maybe end up competing in some business lines, but we would also be a partner to many of these companies for some of the businesses they do. Is the competition increasing? I think competition in India for any business and sector is always very fierce. I don't think there's anything dramatically new or lesser. However, I think the -- if I think of a structurally basis, what we have seen post demonetization and then GST and then COVID and now a higher interest rate regime, there has been a share shift to stronger, better quality players. There has also been consolidation in the sector between whether it's the MSP space or the cash management space, there is some consolidation going there. We have seen the share of the top 2 players increase steadily over the last couple of years. How that trend bodes in the future, we don't know, but I think that's a global trend also because when you think of cash management, you need large integrated companies, which are able to cut across different product lines and are able to service the length and breadth of the country. That's where the route dynamics and operating leverage and risk management comes into play. Do we see any new competitors right now? No, but people -- companies have come and gone. I think CMS remains one of the largest and the strongest companies for the last decade in the sector.

So why I asked this question is because some of the competition, especially in the cash management side has actually become your client, right? Because most of the Hitachi or FIS, they are not doing the Cash Management and they are like mostly outsourcing it and they are focusing more into Managed Services, right? So is that a trigger in terms of scaling up the Cash Management business?

So I think we were the largest -- the best cash management company in 2015. I think after that, that was not an aspiration anymore. Our goal was to simply say how do we increase our TAM. And again, when you think of TAM, our goal is to become -- to offer a high-quality service, earn a fair amount of -- fair margins and build scale. That's what we've done from an automation side, where we are the second largest OEM in the country today. When you think of software, we are the largest. When you think of Remote Monitoring, by the end of this year, we'll be the largest in the country. The only area where I have been very clear to underline this in bold many times is like the Brown label business, which is very capital intensive, is something where we don't aspire to be #1. We are -- that's why we do only 5,000 ATMs. India may have 90,000 Brown label ATMs, we do only 500 of that. And we maybe go to 6,000, 7,000, 8,000, 9,000 in the next 3 to 4 years. We don't aspire to do 30,000, 40,000, 50,000 ATMs. So from a perspective of -- I think in the end of the day, in a market like India, having more integrated offerings across the business is what makes sense because that's where we are able to deliver the most value to our customer. But we have also seen companies exist as specialist companies. They only do one product line in cash management. And they build scale. Now at one point -- at what point will they sell out or sell or I don't know, who knows. But our approach has been to keep growing our TAM and line of services, again, also linked to what our customers want from us. What Hitachi or a Euronet or SBI or Bank of Baroda wants from us is the way we are also trying to scale our business.

Okay. And sir, in terms of more from a macro perspective with the surge of UPI and with the push of the digital transaction, don't you see that structurally the number of transactions for ATM is coming down and with the increased compliance and with the increased compliance costs, don't you think there is a structural threat to the margins in this business, especially on the BLA side?

I think this is an assumption. We don't know. Is cash growing lesser than UPI? Absolutely. Is UPI taking over business from debit cards and credit cards and different payment wallets, of course. However -- and this is not data we have updated recently. I think we'll come out with this in the next couple of months. When we look at the CMS cash index trends, there is healthy growth of cash in our network across the country. I can't compare ourselves to UPI, but I look at cash and what CMS handles on cash management, which is roughly 68% to 70% of our revenue because we have other business which is not linked to that. We do see healthy trend lines in semi-urban and rural, where the growth levels are higher than metro and maybe urban. And I think when I talk to industry players, I talk to banks' Chairmans, I don't think they see that usage pattern in the majority of India changing dramatically over the next -- over the short term. It may change over the next 7 to 10 years, and we don't know. Our goal as a team remains what? I remember when we as the management team came to CMS in 2009, we were predominantly an IT infrastructure player from where we morphed into a cash management company and now we have gone in technology solutions and services. Our idea is to become -- to keep offering solutions to BFSI and retail and grow along with them. In fact, we are seeing a very good pickup, as Anush talked about, very good usage or increase in cash volumes and retail specific sector, I think he had highlighted in his talk. And how do we bring solutions to them. There will be an increased outsourcing from banks because banks are still not outsourcing a large part of this work. So from a 8- to 10-year perspective, I think there is a fairly decent macro for reasonable growth for what we do today. And as a team, I think we have proven that we have been very agile in launching new services, which is helping us grow the way we are.

Yes. And sir, my last question is on the cash management business. So in terms of the contract that we have with banks, so is it a long-term contract or it is being revised purely? And is it based on like per ATM unit economics basis maybe you're charging per ATM per month basis? Or is it based on the number of refills? So how is the basic business structure there?

I think -- so this -- in the interest of time because we are at 5:00, I think this is disclosed in a lot of detail in our RHSP and DRHP documents because this will take us 10 minutes to explain to you across our business lines. But the contracts for Managed Services clearly run into multiyear recurring contracts. In the Cash Management side, we look at contracts more on annual or 2-year, 3-year basis, because we want to have the flexibility to look at prices depending on inflation because the impact of both wages and fuel, both upwards and downwards, is significant in that business. Therefore, we like to have the flexibility to look at pricing on an annual basis. Having said that, our attrition of clients is almost negligible or 0. And looking at a base of -- I know when we came here, we were doing 4,000 or 5,000 ATMs. Today, we do more than 70,000 ATMs. I'm just saying ATMs, but retail and cash vans, all of those metrics will show a very good healthy growth.

The next question is from the line of Karan Bhanushali, an individual investor.

Congratulations on a good set of numbers. Your margins have improved year-on-year. I wanted to ask if these can improve further and what [indiscernible] that.

Well, thank you. I think from a margin perspective, we're quite happy with the way our margins have been tracking last year, current quarter. As I have guided our investors over preceding calls, we, as a team, think the opportunity after the whole COVID era and the consolidation in India before that points us to a larger share of revenues in the broader ecosystem we play in. We are quite focused on making sure that we increase our revenue market share in the industry. How we manage margins and -- as a management team, managing revenue growth, profitability, profit margins, market share is something which we have to be agile at every quarter. And I think we will have to think of what we need to do from a longer term of the business -- interest of the business rather than worry about short-term measures. As of now, yes, they should, but it's not something which we would have any visibility or we could give you some guidance on right now. The market is fairly dynamic.

Okay. Can you also talk about your inorganic growth plan?

So our inorganic strategy or proof points in the last 7, 8 years is that we try to do smaller acquisitions mostly to acquire new capability or enter into new segments. If there is something strategic in our core businesses, we are open to acquisitions. However, we have done 1 or 2 of them, but however, there's usually a big gap in the value of what we think we would like to pay and what a seller may want, especially from a company like us because when they start talking to us, they start looking at our numbers and our margins and starting extrapolating that. So it's not been an easy dynamic for us. We also don't think that we need to go and grab companies and buy them because I think we are able to grow our business organically, and we'd rather invest our capital behind businesses which we have far more -- or orders or contracts where we have far more clarity, control and recurring nature. I think that's the business opportunity we are seeing, and that's the order book we have built. That's where we are deploying our capital. Having said that, something strategic comes up at the right price and we can maintain our capital allocation discipline, we'll be obviously looking at it. Our current energies are going into noncash management, non-managed services into more asset-light technology-oriented businesses where we can use either minority or majority investments to launch or try out new businesses.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Sorry, I think I had already closed the comments initially. But just to summarize, thank you so much for your time and patience. Thank you for your journey with us as investors. We feel the environment is exciting. At the same time, there are challenges as we explained. Our focus is head down, focus on strong execution, continue to improve quality of service for our clients so that we become -- we have a very good moat on our business and use FY '23 to start piloting new business ideas, which can become a bedrock for growth from the FY '25 onwards. Thank you, and have a good evening.

Thank you. On behalf of PhillipCapital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.