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

Ladies and gentlemen, good day, and welcome to the Q2 FY '23 Earnings Conference Call of CMS Info Systems Limited hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aasim Bharde from DAM Capital Advisors. Thank you, and over to you.

Yes. Thanks, Yajeshree. Hi, everyone. On behalf of DAM Capital Advisors, we are happy to welcome you all today on CMS Info Systems Q2 FY '23 Earnings Call. From the management side, we have with us Mr. Rajiv Kaul, Executive Vice Chairman, Whole-Time Director and CEO; Mr. Pankaj Khandelwal, President and CFO; Mr. Anush Raghavan, President, Cash Management; and Mr. Manjunath Rao, President, Managed Services. I now hand over the call to Mr. Kaul for his opening remarks.

Good afternoon, everyone. Thank you for taking the time to attend our FY '23 Q2 earnings call today. We are pleased to inform you that we have been able to continue our growth momentum and have delivered another quarter of strong revenue growth, EBITDA growth and PAT growth. On a Y-o-Y basis, our revenues in this quarter have grown by 27% to INR 472 crores, EBITDA by 43% to INR 135 crores and PAT by 37% to INR 73 crores. Both our businesses of Cash Management and Managed Services have seen strong growth, and this has helped us deliver our sixth consecutive quarter with an EBITDA growth of more than 20% year-on-year. This is a reflection and indicator of our market leadership, our focus on execution, a very methodical expansion strategy and being able to win large, complex end-to-end outsourcing deals in the banking sector. Our order book continues to grow well, and we have added INR 600 crores of new wins in the first half of FY '23. While there was a lot of focus on quarterly performance, we did want to reiterate and point out that our H1 growth -- our H1 revenue has grown by 25% to INR 925 crore level. PAT in the same period has grown by 42% to INR 142 crores. I'm now going to request Pankaj, our CFO, to take us through the high-level financial highlights.

Thank you, Rajiv. Our revenue from operations for Q2 stood at INR 472 crores which grew by 27% on a year-on-year basis and net profit was INR 73 crores which grew by 37% on a year-on-year basis. PAT margin in the quarter has expanded to INR 15.4% by 120 basis points between Q2 FY '22 and Q2 FY '23. We are pleased to share that ICRA has improved the outlook on rating to positive from stable and reaffirmed the rating at A1+ and AA. At a segment level, both of our major business segments have recorded strong revenue and margin growth. Revenue in our Cash Management business grew by 17% to INR 324 crores in quarter and 23% in H1 to INR 637 crores. EBIT from the business grew by 23% to INR 81 crores in quarter and 32% in first half of the year to INR 158 crores. Similarly, revenue in our managed and technology services grew by 58% to INR 156 crore in the quarter and 34% in H1 to INR 302 crore. EBIT for the business grew by 120% to INR 32 crores and 82% in the first half of the year to INR 61 crores. With this, I now hand over the call to Anush, President of our Cash Logistics business for more insight into the business performance.

Thank you, Pankaj, and a very good afternoon to everybody on this call today. In the second quarter, the revenues for our Cash Logistics business grew by 17% to INR 324 crores. Usually, the second quarter is seasonally a weaker quarter for us due to the monsoons and the Sharad period, but we have still seen our activities grow 6% on a sequential quarterly basis. The total currency handled by us also grew strongly at 12% on a Y-o-Y basis, indicating resilience of cash usage. In fact, this number has grown even faster in urban areas, recording a 23% growth on a annual basis -- on a Y-o-Y basis. We continue to invest in upgrading our infrastructure in accordance with the RBI and MHA guidelines, and we are on track to achieving our compliance targets that we had set for the year. As we continue to invest in technology and automation for our day-to-day operations, it has helped us expand our EBIT margins by 110 basis points despite an inflationary cost environment. With that, I now request my colleague, Manjunath, to share with you an update on the Managed Services and Tech Solutions business.

Thank you, Anush. Good afternoon, everybody. In Q2 revenues for our managed & tech service -- technology services business grew 58% to INR 156 crores. Our business contributed 33% of overall company revenue in last quarter compared to 26% a year back. With this scale up, our EBIT percentage has improved by 570 bps year-on-year. In our AIoT Remote Monitoring business, we are now live at about 18,500 locations by September '22. This has been phenomenal execution of our new business, which we incubated just 2 years ago. We are also expanding the software investments for developing use cases for our new sectors. In our banking automation and MS business, there are key RFPs and bids due in the coming 6 months, and we will share more on this as these contracts are decided and awarded. With this, I will hand over to Rajiv to do his closing remarks.

Thank you, Manju. At the end of last fiscal year, we had highlighted that our big focus on the current year is going to be on execution, given that we had a fairly significant order book to focus on. I'm happy to report that our execution of this order book, despite many supply chain issues and an inflationary environment, our things are on track. In addition to this execution, we are also doing well on our enterprise sales strategy of deepening our presence with different business lines across large PSU banks. This will enable us to have a more diversified base of business and also increase the share of our revenue -- the share of our recurring revenues. From a growth perspective, our approach has been very pragmatic and value-oriented, buying growth with a large acquisition or at a high valuation doesn't fit with our culture. Our M&A approach has hence been very programmatic and methodical. And we will always prefer to do small acquisitions to enter new business segments and leverage the CMS platform to scale them. If you see over the last 5 years, we have expanded both horizontally and vertically from being predominantly a Cash Logistics business into a business services outsourcing platform, which is currently focused on the banking -- on the BFSI and the retail segments. Over the last decade, we have maintained a robust top line growth of 17% CAGR. For the FY '21 to '25 period, we have set our goals of doubling revenue at a CAGR of 18% to a INR 2,500 crores to INR 2,700 crore range. In the middle of FY '23, I'm happy to share that we are on track to achieve this target. Thank you for attending our call, and we can now move to questions.

[Operator Instructions] We have our first question from the line of Baidik Sarkar from Unifi Capital.

Congrats on a very strong financial print. A couple of questions. Our cash collection business from retail chains per se is a function of how well the banks and NBFCs are growing their own cash management footprint and their own cash...

I'm sorry to interrupt, Mr. Sarkar, your volume is very low.

Okay. I'm sorry about that. Is this better now? Am I a bit more audible? So Rajiv, I was asking that our cash collection business from retail chains per se is a function of how well the banks and our NBFC clients are growing their respective cash collection businesses and footprint, right? And then we follow suit with them. So if I were to ask you or Anush to kind of paint a blue ocean of how growth in this business will generally look like over the medium to long-term frame, is there a number that you can quantify as things stand today? And secondly, on your Managed Services business, right, there are several moving parts with the brown label ATMs and now remote monitoring, what is the pending execution of our order book here in respect to silos? And by when do you think we complete that pending execution? And post that, how does the deal -- the new deal pipeline look?

Baidik, thank you. I'm going to have Anush take your questions on the retail business, and then Pankaj can give you an update on the order book status.

So I think with respect to how we are thinking about the long-term growth and the macro trends of this, we sort of use our annual call to paint a more deeper picture in terms of how those things are trending. But let me try and share with you how we are looking at that sector and what are some of the -- given the last 2, 3 years have been fairly volatile, what are some of the emerging trends that we are seeing right now? Broadly, when you think about the retail space in India or -- and you compare -- sorry, when you look at the cash logistics space in India and you sort of compare that with any other developing/developed economy globally, you would broadly find that there is an even split of revenue between ATM, retail and then banking services in the form of cash in transit and currency check management and so on. In India, the growth historically has been a little bit more lopsided in bias towards the ATM because it was that segment which got a lot more tailwind in terms of banking outsourcing and BLA-led growth. When you sort of look at the overall retail space today, we estimate that the total addressable market is about 150,000. And when you sort of try to look at this 150,000 in the context of what should be potential addressable market, we arrive at a number of anywhere between 700,000 to 1 million outlets from where else the service can be offered. And like you rightly said, I think the only constraint or the only issue in terms of achieving this growth is how do banks and NBFCs think of deepening the penetration into this market. I think given what we see right now, the -- both historically and currently, one of the reasons why banks tend to offer this solution in addition to the fact that this acts as a value-added service to their current account customers is that this provides them a very lucrative form of float and liquidity as compared to a fixed deposit or a savings account deposit. And I think when you sort of look at that in -- use that lens to think of it from a macro perspective of where things are in the country today and how banks are looking at their liquidity position, I think, obviously, that sort of acts as a tailwind for them to further deepen and focus on their sales efforts in growing this segment.

So Baidik, I think just to supplement what Anush was talking about the retail side. This market or the segment did see a lot of churn, thanks to COVID, unfortunately, because a lot of changes have happened in the sector. We want to wait and see how a full year of non-COVID works out and pans out to be able to give you a longer-term trend. Our going-in thesis for the sector is that this sector in the last 10 years has grown at a 10% to 12% CAGR. We think that this sector should grow higher because of higher formalization and a more organized retail and e-commerce pickup in the country. But we would like to wait and see how this full year goes before we can give you a better or a more confident commentary on a midterm growth opportunity in the sector.

And if I can just harp on that question a bit more. Apart from the top 3 private banks in India and probably SBI, do you see energy levels from any other, say, the older generation private banks getting into this kind of business, Because I repeat myself here, your growth is kind of dependent on their growth. So I'm just trying to see how the ecosystem generally is kind of growing in this segment.

Sure. So the elements of change here are the following. One, e-commerce players need this service with just the private sector banks or multinational banks or public sector banks will have to cater to that need out there. So I think that's a big driver out here. Similarly, from our side, as we built our enterprise sales strategy to focus on public sector banks for the large ATM outsourcing piece, we are also building a sales pipeline of working directly with many large, organized retail companies. This could be everything from a petrol bunk to a departmental store and whatnot. And I think that will show results over a period of time. Our approach is also to change this from a vanilla cash pickup service to more end-to-end outsourcing using retail cash vault, offering cash burial services and using former technology to have a longer-term growth story out here. So I think we have seen this sector was started primarily by the multinational banks, then the large Indian private banks have led the growth and deepening. And I think finally, when the midsized banks and, as you said, NBFCs, insurance companies and also the most importantly, the public sector banks adopt the outsourcing wave in the sector, I think you will see a very good growth. And that's why even if I go to our pre-IPO days, we said this is a sector where we think the tailwind or the opportunity of growth is for the next decade or 2 decades, just given the level of outsourcing and how as we rate it on the quality or the type of outsourcing is still at a medium quality level, not at a high-quality level.

And on the managed, Rajiv?

Yes. So on the Managed Services, as we said that we have a order book win in this particular H1 is INR 600 crores. By this, our blue order book stands around INR 2,800 crores, out of which around more than 75% of the orders has been executed. I want to clarify that these orders are long term in nature and the revenue will occur over a period of 5 to 7 years.

Sure. And what is your new deal pipeline look like, sir? By which I mean the RFQs in the market as far as BLA and traditional ATMs are concerned, new RFQs around the monitoring business, any color on that?

So I think there are significant -- so I mean, I think right now, what we know for sure is what we have won, right? And that's a number of INR 600 crores in H1. There are significant and important RFPs which we have alluded to and talked about. There is a deal pipeline which is quite robust, which is linked to the whole bank -- public sector bank refresh and expansion cycle. We will have to wait and see how many of them are closed out in H2. But -- so I think we will keep reporting as they happen. The decision-making in banks is not something we can influence and control. But I think our strike rate and win rate has been excellent in H1.

[Operator Instructions] We have our next question from the line of Achal Lohade from JM Financial.

Congratulations for the great earnings performance. My question is, you have talked about 70,000 ATMs in the recent presentation. Just wanted to understand, is this as of 30th September, as of October or -- if you can highlight that?

Achal, I think our -- the number of business points is something we've also said at the end of FY '22, that's a metric which we would like to report annually and not quarterly. I'm not sure which presentation specifically are we referring to. But from a updating -- from a competitive intelligence perspective, I think we'll be comfortable sharing an update on our business points. At the end of September, our total business points would have been 115,000, and we will report to you the number end of March with a little more breakup at that time.

Okay. Actually, I'm looking at the Slide 6 of the presentation, which we -- you have just uploaded last night. I'm looking at in the time line specifically.

Sure. Let me just ask our team just give me a minute. No, I think, Achal, that number of 70,000 of ATMs you looked at is the number we had end of March. That's the number we'd reported.

Okay. Understood. The second question I had, can you help us understand the absolute cash handled by us for the quarter and for the previous quarter? Is that possible?

This is Anush is here. So I think that is about INR 3.1 trillion for the quarter.

This is for second quarter, FY '23. And how was that for second quarter last year and also 1Q of this year, sir?

Last year would have been about INR 2.75 trillion. So that's that 12% growth.

Okay. And for the first quarter?

Yes. I think it should be around INR 3.05 trillion.

INR 3.05 trillion. Okay. I understood. And just one more question. You have talked about the order wins. Is it possible to get some color? Like Rajiv, you mentioned that we had a significant strike rate. Can you help us understand the number of BLA ATMs we have won or RM sites we have won in the last 6 months? Is that possible to quantify as well?

So Achal, again, these are competitively sensitive information. I think as a management team, we will be -- we would prefer to share this on an annual basis because that's the metric we set for ourselves to track ourselves on. I think even the names of customers, I think, are -- is linked to our agreement with the customers and depending on what we can share. So I think you'll have to be a little patient with us. And right now, the only thing we can tell you is that our order wins have been of INR 600 crores in H1.

Understood. And just last question, if I may, with respect to CapEx guidance, how do we work with that for FY '23, '24 and '25, a ballpark CapEx range given first half, there is hardly any free cash generation. But I understand it's the managed services obviously entails the CapEx but if you can still give some color as to how you look at the CapEx for current year and next 2 years?

So in the last earnings call, we have given a guidance that we are expecting that the CapEx of around INR 200 crores to INR 225 crores. This in H1, we have done a CapEx of around INR 135 crores. And our estimate is that we will be able to do the year-end by between INR 200 crores to INR 225 crores, depending upon the execution of the number of orders we win. We expect that -- depending upon the new orders we win, and we are not very much focused on the BLA unless it gives the returns to our threshold. We don't foresee that our CapEx will be significantly higher than these numbers. Rather, it will be much lower than these numbers.

Basis what we know today, Achal, and life can change. I think FY '22 and '23 are years we think are of peak CapEx. It should reduce after that. But again, middle of the year is not the right time for us to be able to give you a long-term plan in that direction. We will give you an FY '24 sort of visibility at the end of the fiscal year.

We have our next question from the line of Balaji from IIFL.

Am I audible?

Yes. Please go ahead.

Congrats on the great set of results. So I have a couple of questions. The first one would be, are you on track to achieve the INR 100 crore revenue mark from AIoT Remote Monitoring in FY '23. And now that you are almost 75% through your remote monitoring order book, how should one look at the visibility beyond FY '23. And the second question would be on your costs. Your cost control has been fairly remarkable despite inflationary pressures. Could you elaborate a bit on the cost control initiatives that you are taking? And what more levers you have going forward?

Thanks, Balaji. Let me quickly answer the first question, Anush can help you with the second question. On our AIoT business, we are on track to hit the INR 100 crore annual run rate. It was always an annual run rate target this year. It would not be INR 100 crore revenue. This year, it will be INR 100 crores annual run rate which means we will have a monthly revenue run rate of INR 8 crores, INR 8.5 crores. So we are on track to achieve that in this fiscal year. We are working -- as we -- as Manju mentioned, we are working on new use cases. There are RFPs which are -- which hopefully should get closed in the second half of the year which will give us an indication of the FY '24, FY '25 pipeline. As of now, we have an order book of 25,000 sites, out of which about 18,000, 18,500 sites are live, and we hope to get the remaining live by -- before the end of this fiscal year. On the cost side, I'll just let Anush give you a little bit of a peek into our approach on how we think about costs and cost management.

Sure. So Balaji, I think we have, I think, shared a little bit of this in our last quarterly update as well. And obviously, we are sort of living in unique and interesting times from an inflation perspective. Usually, the first quarter is the one which bears typically the wage increase cycle when you sort of look at it in that context. And the first quarter is usually where we sort of provide for all this and make those cost increases. And cost management for us is a function of trying to balance and focus on our margins from multiple perspectives. There is a lot of investment and effort that goes into tech and automation and consistently using that as a lever over a long-term time frame, not just quarterly or annual basis to sort of always keep trying to get better efficiencies and better synergies. And along with that, trying to make sure from a productivity and SG&A cost perspective, what is the optimization that we can get. And then there is also sort of trying to use pricing in an intelligent manner to sort of balance the needs of the market share as well as margin. So to us, this is sort of -- we don't think of this in terms of step increments in terms of doing it as a onetime effort. There's a lot of consistent effort that goes into it. What you're seeing as sort of our consistent improvement in terms of our EBIT margins over several quarters sort of really stand testament to that. And we'll continue sort of evaluating our -- the external costs and the macro picture in terms of how inflation trends and -- to us, like I said, it's just a continuous process and effort.

We have our next question from the line of Nirmal Bari from Sameeksha Capital. [Operator Instructions]

Yes. Congrats on the very good set of numbers. My first question was on this -- a clarification on the CapEx part. Despite winning the INR 600 crores of additional orders in the current -- in the first half, we don't anticipate that the full year CapEx will move up, right?

These order wins, Nirmal, have -- don't have any capital requirements. These are wins in a very -- in a CapEx-light model, not in the CapEx businesses.

Okay. And secondly, for the first half, our CapEx was about INR 132 crores. So is it possible to give a rough breakup between CapEx on the Cash Management side and on the Managed Services or the BLA side?

So I think from our side, we can tell you by the 2 businesses, not by specific business unit, but -- not by specific BLA. But I think from a Managed Services business and the Cash Management business, we think -- our estimate will be that INR 132 crores would be split, Pankaj, almost on a 50-50 basis?

Yes. It is around 50-50...

50-50 basis.

Okay. Okay. And secondly, on the receivables part, in Q4 last year, that is for the full year last year, we had some write-offs. And then at that point of time, it was said that it was because of some invoices mismatching or something. But even in the current first half, we have about INR 43 crores or INR 44-odd crores of receivables write-off. So should we consider this as a part of the business and this 4%, 5% kind of revenue as a percentage of revenue would be written off every year? Or why is this happening? If you can comment on that?

So, sorry, I don't remember that and there is no reason that we believe -- to have that invoice mismatching, et cetera.

I think there's some confusion maybe or misunderstanding on that -- on the reason for a write-off. I think the write-off would have been linked to more reconciliation issues which are normal in our course of business.

So we handle around INR 1 lakh crores of the cash every month, and there is some reconciliation in that, that result in some losses, which is basically we have to write off for the same. As of now, if you see last 3 years or 5 years, it is ranging from 3% to 5%. And even this particular quarter is around 4%. So as of now, it is based on the past track record and the current trend, it is ranging from 3% to 5%. Going forward, after we implement sort of MHA or RBI or cassette swap, et cetera, we believe that these percentage will reduce.

Okay. That is quite helpful to know. My last question is on the margin improvement in the Managed Services business. So generally, if we do some product sales over there, this is my understanding that if we do some product sales, then typically in those quarters, the margins tend to come down. So is this 20% kind of margin that we are seeing in the last 2 quarters, does it have some play on -- that the mix is more oriented towards services and so the margins are higher. But in the next 2 quarters, if there is product sales, it may come down. So...

So, yes, that -- generally, product margins are comparatively lower, and we end up to the product only where we foresee that there is a lot of other services revenue associated with that. However, our total product revenue is in the range of around 2% to 5% of our total revenue. So it's not that significant. And on the MS side also, if I talk about only MS, it is ranging from 6% to 11%, 12% so far.

Yes. So the way you want to think of our product business or rather, I would call it a banking automation business is that, yes, if we have a quarter or a year where there is a significant revenue from that line coming in, it will have a lesser margin profile but it's fairly accretive to us. And most importantly, it gives us a very long-term services revenue stream attached to that banking automation line of business we have. So I think it's important for us to keep building sustainable long-term revenue sources and also leveraging our investments of our engineers and our people on the field. And the other way to think about it is that when we think of giving you all these forecasts and the longer-term forecasts, we don't estimate our product and banking automation revenues to be a significant part. We like to think of that at capped at 5% to 10% of our revenue and not a large contribution to our revenue profile. So what you should look at is how is our services revenue tracking because -- in fact, this is a good half to look at. When the product revenues are lesser, you get to see what is the base of services revenue, what is the EBIT profile of that business and that you should track and how that is trending over time.

We have our next question from the line of Kuber Chauhan from IDBI Capital.

Just wanted to know that by any chance, are we facing any kind of a threat from UPI transaction or online transaction, which is currently booming around? And second question is on CapEx. So the CapEx which you mentioned, is it from internal accruals? Or are you planning for any additional loan? So these are the 2 questions.

So on the CapEx, let me have Pankaj address that question first.

Yes. So as on -- all this CapEx is done on an internal accrual basis. We have -- as on 30th September also, we have a cash balance of around INR 248 crores -- cash and cash equivalent of around INR 248 crores available in our books. So all that CapEx is done on an internal accrual basis.

And from your broader question of UPI versus cash, I mean, this is a question we've been answering since pre-IPO days in every call. But I mean, UPI has had a phenomenal trend in the country for citizens, for everybody. Our answer, I'll keep it very brief, is that the prevalence of digital transactions is helping the country in many ways including financial inclusion which is a very important part of our culture and how we transact in the country. It has affected, obviously, the growth rates of cash over the last 4 to 5 years. However, we also feel that as India's GDP grows, consumption grows, the rural markets grow, we see that cash will continue to grow well. Though digital may grow faster or slower at times, we'll have to see. And they are also coming from a smaller base rather than cash which has been here for a century.

Okay. Okay. So any kind of -- I mean, what are the growth plans just to move ahead from -- for our cash management division? So any kind of a guidance over that perspective?

So I think our -- I'll right now use this quarterly call to stick to the goal of sharing our information instead of a very broad strategy. Our cash management business, which was, let's say, 100% of our revenue in FY '14, '15 is right now at the end of FY '22 was about 70% of our revenue. We estimate that this revenue contribution of our cash management business will be around 60% of our revenue by FY '25. And our Managed Services Technology Solutions business will move up from 0 in FY '14, '15 to 30% last year and around 40% in FY '25. This is assuming we are not expanding into any other new sectors in the next 2 years and which we have to wait and see how those expansion plans will do. With this, we are still looking at a growth rate of 18% CAGR in revenue from FY '21 to FY '25.

Okay. Okay. So no threat from UPI transaction and online transaction, right, for a particular division?

I think our business model is very different. And I think we have shown the resilience of the business model and the way we approach by our consistent growth of revenue and profits in the last so many years.

[Operator Instructions] We have our next question from the line of Nitin Sharma from MC Pro Research.

Congratulations on a great set of numbers. Two questions, if I may. Would like to understand more that what is driving the management services performance in the first half? That is one. And then I have a follow-up.

So this is your [indiscernible] feedback. I think our -- you go back to last year, and obviously, we weren't listed at that time in September, We had won a significant order book at the end of COVID and walking into FY '22. The execution of the order book has started in H2 of last year, and you're seeing the quick ramp-up of that in FY '23. And therefore, when you look at the large bump up in Managed Services revenue from a half-to-half basis, part of it is also the base did not have the luxury of having a lot of the order book under execution at that time. And that has given us a significant jump up in this half.

Understood. And basically, would want to understand that is it fair to assume that the security and service charges will continue to grow near the revenue growth rate Y-o-Y and some update on the RBI compliance status?

So let me have Anush take you through the compliance status, and we'll come back to your security question.

Sure. On the compliance front, as we had updated, we sort of set ourselves a goal of achieving about 65% compliance by end of fiscal '23. As things stand, we are on track to achieving that number. We had also shared that from a longer-term perspective, we estimate that the compliance -- most of the compliance should be rolled out by FY '24, depending on ATM or retail segment. So from that 3-year perspective, we are sort of on track with our compliance execution.

So on the last call, you mentioned that the cassette swap compliance was lagging behind. Is it still the case? Or is it at par with your year-end goal?

No, cassette swap, to be fair, I should call that out. When I talk about compliance, I'm talking more about the base RBI MHA compliance and achieving those 65% and close to completion by FY '24. I'm not talking about cassette swap. Cassete swap still continues to be laggard from an overall industry perspective. Though as the market leader, we are reasonably well positioned to implement that in terms of investments into our infrastructure and overall capability. But having said that, the RBI is continuing to urge the banks to ensure that they can meet the deadlines imposed, which as of now is March 2024. So we will have to see how that evolves. But as we sort of near that goal, there is a greater degree of pressure and urgency thrown by the banks to wanting to start ramping up their network towards cassette swap compliance.

Understood. And on the maintenance question on services and the securities segment maintenance.

So these are service and security costs are basically the outsourced employee and the security we take for the -- specifically for our Cash Management business and which is increasing in line with the increase in the revenue of that particular business.

It's not a straight-line correlation, but -- and we hope it's not because we hope to get more productivity benefits over time. But it's mostly linked to our outsourcing of any staff which we need for our business and especially the security infrastructure we need to put in place for both RBI MHA compliance and for our cash management network.

We have our next question from the line of Abhay Agarwal from Piper Serica Portfolio Management.

I hope I'm audible?

Yes.

I have -- my question is that I heard you use the phrase banking automation and which is now -- to me, it sounds like going beyond this cash management and almost a convergence of your Cash Management business with Managed Services business. And also, we recently saw the government launched 75 digital banks. So my first question is, are you considering that digital bank branches to be an initiative that CMS can benefit from, which goes beyond just cash management, but literally running these branches. And secondly, the way the Managed Services business is growing and the fact that it probably doesn't require as much cash to grow as the Cash Management business, plus you have international clients, so the growth can be much bigger. So how much bigger can the management -- Managed Services business be over the next 3 to 5 years as compared to the Cash Management business? These are my 2 questions.

So let me try and take them one by one. On the banking automation side. Banking automation side, of course, is a fairly vast field. We are -- we've been helping both public sector and private sector banks automate their branches so that the load at the front desk and that the tellers can be much reduced. This is from ATM, self-service kiosks, cash recyclers and other solutions and even going up to currency chest automation. We have provided solutions to banks for that. The question -- I think your remark on capital needs, I would like to correct you here is that our Cash Management business is not actually very cash intensive -- not CapEx intensive. Some parts of our business in Managed Services, like the brown label ATM business are capital intensive, and therefore, we don't have a big thrust in those sectors. We have been very clear that it's an area we will look at very judiciously if it meets our return metrics. And that's the way we will -- we have been very -- capital allocation-wise, we've been very stringent. If you think of the company over the last decade, not more than INR 200 crores of equity capital has come into the company. Most of it -- the growth has been done by internal accruals only. From a perspective of the Cash Management versus Managed Services, if you -- what I would like to refer to is what we shared during the IPO time and later, the market size or the TAM at the end of FY '21 for our combined businesses was roughly about INR 8,500 crores. That is expected to grow by 2.5x to INR 22,000 crores by FY '27. Now the growth CAGR opportunity is almost similar to the Managed Services and the Cash Management. However, the cash management market in FY '27 is forecasted to be an INR 8,000 crore market and the remaining INR 14,000 crores is from the -- both the Managed Services as well as the AIoT Remote Monitoring business. So it's a larger market, a larger market opportunity for sure. However, our goal is to focus on the businesses where we can deploy -- where we don't need to deploy too much capital and we can continue our growth rate at healthy return metrics.

We have our next question from the line of Abhishek from Narayani Investment.

First question, are you thinking starting new service line? Or are there any plan for inorganic acquisition? Would you like to say something about it? And second question, what kind of EBITDA and PAT margin are you expecting in H2 and the next 2 years?

Abhishek, thank you for your questions. I think in line with the way we've done our last 3 quarter calls and this quarter call, we don't, as a management team, give any guidance on EBITDA or PAT. We -- our only guidance is on revenue for FY '25, which is to reiterate again, we have an 18% CAGR goal of growing our revenue from FY '21 to FY '25, which is to take a revenue of INR 1,300 crores to roughly INR 2,500 crores, INR 2,700 crores range by FY '25. In terms of service lines and inorganic acquisition, as a team, we are always focused on looking for adding on business lines and services in which we can scale and be a market leader and do well. There -- we will share with you -- I mean, if you would refer to our annual report letter or our earlier calls, I think we have alluded to the areas in which we are examining our expansion strategy. As of now, there is nothing definitive. We are -- the last acquisition we made was in remote monitoring about 12 to 15 months ago. And we continue to look at markets adjacent to us or new sectors. Our approach is to focus on our capital to enter new lines of sectors instead of investing in our current sectors where we think we should be able to grow our market share and business organically, unless we get something very cheap.

We have our next question from the line of Sanjay from Real Group.

Am I audible?

Yes.

So my first question is like what's the management's take on RBI decision to come up with the CBDC? And as you already provided the revenue guidance, so are you keeping in mind that if it goes well with the CBDC side, how it affects your revenue? And what will be your outlook on that?

So from a -- I think if you look at our revenue model, it's a function of the number of business points we handle in the country. I don't think a CBDC or increase in a -- certain increase in that will have any impact to our current business lines and the way we have structured our company. But from a CBDC perspective, our views are -- you and I know the same what we read in the public domain. The Central Bank is like -- country is trying to pilot it. The pilot has been launched for wholesale. It looks interesting. I think it's a fairly interesting idea to try this in wholesale, especially for intercountry remittances in rupees. From a retail perspective, we, as of now, haven't really understood what use case will it serve and how will it help a consumer or an Indian citizen yet, given the fact that we've had a remarkable adoption of UPI in the country. So CBDC retail is to be seen to see what it helps deliver in the country and what problem does it really solve. The wholesale one, specifically from an intercountry remittance in rupee trade and all, I think that looks like a promising opportunity for the country to explore like some other large developing countries like China are already doing.

So are you expecting any threat if it plays well down the line?

Not as of now. From what we understand of CBDC pilots and early the papers, we don't perceive this to be a threat to our current business model.

[Operator Instructions] We have our next question from the line of Bhavin Shah from Sameeksha Capital.

So first of all, we own the stock, so we are believers in your story. But I actually am -- I want to go back to the question of the cash in circulation to -- when I look at how everything is happening, the only use of cash I can see is for black money and corruption and that's -- because I think every smallest, even at the very bottom of the pyramid, people are doing UPI-based transactions. So if you can comment on that. And then you have given a very interesting data on CIC, cash in circulation as a ratio of -- basically trying to show that India's velocity is low. So is that velocity number decreasing, increasing or stable? How is that? And then on the remote monitoring, I think last presentation, you had shown a pretty large TAM, including the one in the nonbanking area. So how much is right now the revenues from remote monitoring and IT solutions? And like are you looking at the nonbanking area?

So let me take the last part of your question first, and then Anush can talk to you about the cash in circulation or velocity questions. I will avoid any reference to cash being used for black money now because that is not a business model which works to our advantage anyway. So I hope if that is happening, it comes down. We only work in the organized channel and that's the money we -- currency we handle because we work with the banks. From a perspective of remote monitoring, we have talked about large TAM, and that's our understanding of the market opportunity across many sectors in the country. We have started focusing on the banking sector actually because that's where our strength of enterprise relationships and our know-how lasts. I think we have done well in that. We are expanding now to other elements of BFSI, which is insurance, NBFCs and that sector. I think we want to play to our strengths to build our base as quickly as we can and become a market leader in the areas we are. However, over time, we do want to -- we do aspire to expand into the broader opportunities there. You have to keep in mind that this is a business we started 18 months ago. And then you have to think from a long-term perspective, we have already started building the software use cases for new sectors. There will be pilots. We'll have to see what we win and lose. We'll have to learn and see how we are able to do well in other sectors. But from a BFSI sector, I think we feel good and happy about our software. And what we have most importantly delivered, the number of robberies and incidents which we have prevented or fires and everything in a very short period of time, we feel very happy about the value we're adding to our clients. I think over time, as the quality keeps improving, our footprint increases, we should continue this, again, to build this into a good cash cow into a high-quality business into a #1 market player in India. We will be focused on the B2B side. We are not focused or intelligent enough to focus on the B2C side. I think, again, for this, we would be -- end of year would be a good time to report on broader direction of these businesses instead of at the midpoint, where I think the focus is on -- a lot on the current year execution. Anush, do you want to talk about cash...

Yes. I think with respect to cash, everybody -- this is an interesting topic where everybody tends to have a certain rhetoric or an anecdotal view, mostly based on what we are seeing in the world around us. We sort of try to look at it as objectively as possible. And the only guidance that we can sort of give is basis the data and numbers that we are seeing. Now -- and obviously, as a cash company, we've been tracking a lot of these numbers for a long period of time. We also evolved the cash index in a way which sort of seeks to demonstrate what is the actual intensity and usage of cash in terms of whether the ATM withdrawals or the retail cash usage. And maybe what we can try and do is at the end of the third quarter, we will try and share with you, given that the festival period has just got over, at end of third quarter, we'll try and share with you some slippage from our cash index which will hopefully give you a sense of what is -- what are some of those longer-term trends. But right now, I'll just limit myself to 2 or 3 specific data points. Generally, the perception is that with the increasing penetration of digital and UPI, most of urban India is sort of migrating into that usage. We've sort of repeatedly reiterated the point that 2/3 of the work that we do is in semi-urban and rural India, where there is, in fact, a lot of work still to be done in terms of financial inclusion, in terms of improving people's access to banking and in terms of the need for the per capita incomes in those segments to increase if India has to sort of meet its broader macro aspirations. But having said that, when I look at how cash is trending in metros, and this is just the top 6 cities, we've actually sort of seen a 23% change in terms of overall increase of cash withdrawals through the ATM network on a year-on-year basis. So Q2 of FY '22 versus '23 is 23%. And if I sort of look at it on a sequential basis, that is 5%. For a long period during this COVID, we have sort of seen that the semi-urban rural India and semi metros has more or less achieved their pre-COVID cash usage levels and slightly exceeded that. Metros were lagging at 90%, 95%. But in the last 6 to 9 months, we've sort of seen a dramatic shift in that usage. Second, when you look at the overall cash volumes, which is beyond ATMs and we look at how those are trending. Now Q4 is usually the -- cyclically is the strongest quarter in terms of -- because typically, that leads to a spurt either due to tax payments or insurance payments and whatnot. But -- we shared with you on the last call as well that this first quarter was a period of highest cash usage that we have seen across our network ever, even surpassing Q4. Q2 continues to build on the Q1 strength. And as it stands that we have seen a 5% increase in the overall cash usage in Q2 even as compared to the fourth quarter. Retail sector continues to show fairly strong degree of resilience. Sectors which were impacted for the last 2 years due to either a function of lockdown, mobility issues or COVID, sort of seen a strong resurgence. If I just look at media and entertainment, for example, that's up by 150% on a year-on-year basis. Aviation is, for example, up by 20%, while also -- while the other sectors are sort of tending to hold to their long-term trends.

So the cash velocity ATM withdrawal as a percentage of CIC, is that increasing or decreasing for India since you have this data from the past as well?

I think in terms of cash velocity, see, the CIC has sort of undergone a significant increase in the last 2 years. I think that was a step change. And that CIC is sort of obviously holding steady. I think it's just a 2% increase. But the usage of cash is a more smoother curve, and that's sort of continuing to increase slightly. For the base of that, I think in the longer-term trend, I think that should be reasonably steady. I don't think -- we will have a look at the number. In case there's a change, we'll come back to you. But I don't think that number is changing much.

Bhavin, I may want to just join into this question a little bit and give a different perspective for the sake of not only you but our other call participants because this may not be understood very well by some people here. Our business model, even though the metric which an investor will look at is currency in circulation and velocity, we have a contrary view actually. We actually think that if this goes down, the need for our services and efficiency will even go up. Our business model is linked to what? Is linked to the number of trips, is linked to the number of business points we cover. It's not linked to the amount of currency we carry or we manage rightly or wrongly, which way that's the business model in the country. Now if organized retail goes up in the country, whether it is a Reliance Retail store or it is a DMart store or it's e-commerce, there will be a cash transaction in that. The percentage of cash transaction may be 10%, 20%, 30%, doesn't matter. But that means that business point will need to be covered on the cash logistics network. That is where we get the revenue from. Then now there may be a small amount of revenue linked to the amount of currency, but the majority is linked to the stock. And that we think is a long-term opportunity for decent growth in our industry on the retail side. You come to ATM, the ATM management business in cash is linked to the number of ATMs, obviously, we handle. And there, we have more than 35% of ATMs that are still in-sourced by the banks and not outsourced. The second element is how many trips do we need to make to that ATM in a month. That's where our pricing is linked to. And that, over the last 5 years has not declined much. It has declined by max 10% after demonetization because, again, the -- our linkage here is to going and doing a just-in-time fill so that banks can optimize on the currency, which is outside the network and on which they have to pay an interest. And we have seen pre-GST, post-GST, pre-COVID, post-COVID, the number of trips being fairly strong and robust out there. Now the amount of money which we put in each trip may go up or go down depending on seasonality. So again, if you go to our Managed Services business, our linkage to the currency in circulation or the currency volume we handle isn't so much to our revenue. It's just to demonstrate to you the robustness of cash usage because perception, like you said, cash is used mostly for black money is untrue, right? There is a lot of cash being used in the formal channels, which is traceable and trackable by the banks, which you and I sitting in a larger city may not be so aware of and we may perceptionally be thinking differently.

See, what I meant is the need for incremental cash is primarily for corruption and then that...

I mean that's your viewpoint, right? My point is I don't think we as a management team to comment on that and neither are we qualified. My point of view is simple. If India will grow at 5%, 6%, 7%, some part of that consumption growth at a rural sector will be taken care of by DBT, will be taken care of by UPI. Some of it will be done by cash. For us, the deepening presence of financial services in the country, the deepening presence of organized retail in the country is an opportunity for growth because they will -- our view is that all boats will rise. At what rate? We'll see, but all boats will rise as a country does well.

Okay. I think I'll take this offline and I think it will be better.

We have a next question from the line of Mukesh Kothari, an individual investor.

Am I audible?

Yes.

Just to take forward the last caller's query on velocity of cash. I think if I read the trends in UPI and the current CDC that RBI is proposing, the low cash velocity in India is actually a feature, it's not a bug, I mean, compared to other countries because other countries don't have similar systems, except probably Brazil. So low cash velocity impact is not an opportunity, I think it's more of a design. What do you think about that?

Sorry, your question wasn't fully clear. Was your question that the low cash velocity in India is not an opportunity or...

Yes, it's not an opportunity because other countries don't have a similar system the way India has, right? UPI and I mean, the other latest one which RBI has come out with.

No, not really. I mean you go to even a developed country like America, there are many interpersonal payment solutions available. They may not be done by the national regulator like NPCI, but there are many applications by bank to bank, which people are -- the Venmo, which everybody in America will be using to transfer money to each other. There are digital wallets. There's not an invention of India. Digital wallets were invented 25 years ago, whether you go to Japan, you go to China, you go to wherever. So everybody has their own system or different systems, either by private sector or public sector prevalent out there. The comment on cash velocity and opportunity is, let me try and explain this one more time, is that if the currency in circulation goes down, let's assume this is a hypothetical scenario, right? If it goes down, we feel that the banks will need to drive more efficiency of cash usage through velocity. Right now, we think the system isn't that efficient. I think there are many hops which a company like us needs to make. RBI prints the money, the money needs to go to a bank chest, from bank chest goes to a bank branch. From there, it goes to a bank ATM, then you and I withdraw the money. We spend it at a retail shop. Then a company like CMS goes and picks up the money, then we bring it back to our world, we process it, then we go to a bank chest, the bank chest will keep it or take it back to RBI. This can be far more efficient. It is something we have been trying to advocate for a long time as a leader in the sector. It hasn't been yet being streamlined for whatever reasons there may be. We think that will streamline over a period of time. And I think as that happens, you would also keep in mind that in India, the cost of cash or the cost of currency has been at mid-single-digit levels always. It's never been 2% to 0%. It's been 5%, 6%, 7%, 8%. When you have such cost of cash, whether you hold it in your chest or your ATM or branch, it is in the bank's interest too, therefore, have a higher efficiency of how frequently can the money come back to their wallet rather than it be floating outside. Part of it also is that as a country, we -- a lot of us continue to hold a lot of cash at home or in our wallets instead of depositing it frequently back into your bank account and then withdrawing it when you need it, either it's due to access or it's due to whatever reasons out there. So our concurrent viewpoint for the long term, this is not something I foresee happening in the short term, is that when the velocity will improve, the need for a cash logistics company will be far more robust than even what you see today. Again, it's a viewpoint. You and we can defer on it, but that's something we feel having been in the sector of the business for the last 15 years.

I take your point. My next question was on basically the market share. Currently, top 2 players have around 72% rket share, right? And I understand that it's a growing market, the addressable market will grow, but banks will also have their own constraints in terms of dependency risk that they have. So don't you think that top 2 players might not grow from here on despite the growth in market?

So I mean, it's a valid point. When you think of the -- when you're referring to the 72%, let me clarify for the sake of everybody else in the call, that's a number which is for the top 2 players in the ATM Cash Management space. The retail cash management has a different dynamic, the cash in transit has a different dynamic. The Managed Services have different market shares. Now again, India can be different. India can be similar to other countries. But when we have examined this landscape across tens of countries over the last decade in our experience, whether you take a large country like America or you take a smallish country, we have seen that. For a company to be successful in this sector, this is a cash logistics business. This is also a risk management business, which people somehow don't realize at times. Scale is very important because that scale gives you the networth, the network, and the ability to drive technology to manage your risk and also manage your operations at a reasonable cost. And therefore, these industries have geared towards a 2-player, 3-player, maybe a 4-player market around the world because others cannot survive. India, we saw -- I think when we were in the sector in 2009 and '10, there were 4 players, which quickly grew to almost 8 or 9 players in 2013, '14, '15, which then shrank to a 5-player market which may shrink to 3 or 2 or may again expand. We don't know, right? Competitive dynamics and what companies want to do is not something which we can forecast so well. We think looking at the global trends, there is -- the only larger scale players can survive. Otherwise, it's very difficult to sustain this business for more than 4, 5 years. And as we've seen in India, some companies had to shut down, some had either losses or they couldn't manage to invest to grow the business. So that's our view. Will that top 2 go from 72% to 90% or will it go to 60%? We don't know.

Understood. Understood. Final -- one final question. How do you look at non-BFI opportunities in terms of cash management, say, targeting petrol stations, company-owned company-operated petrol stations or say, railways, have you explored any such area, I mean, non-BFSI? I know there are no guidelines by RBI as such regulating this, but have you looked at this. I mean, that could be a potentially big opportunity, right?

Sure. I think when we talk about BFSI, the reason we say that from a retail perspective is that while we offer our cash management solution to a wide variety of retail stores, we generally prefer to work through the banks because it helps address concerns around compliance, source of money, reporting and AML and so on. But having said that, even if you look at our current split of retail business, it's quite diversified. We work with e-commerce companies. We work with petrol outlets. We work with organized retail, NBFCs, hospitality, education. So from that perspective, we do not sort of set ourselves a bar in terms of the sectors that we work with. The only bar we set or the only standard we set for ourselves is preferring to operate through a banking channel.

So what would be the ratio between BFSI and non-BFSI business? And do you think non-BFSI could grow?

Obviously, I think when you look at the next decade or 2 decades, there is a lot of potential for retail to grow, especially with the entry of large-scale players in the organized retail. We've sort of -- just to sort of name some names, we've seen Reliance Retail. We've seen similar such companies having aspirations of significantly increasing their retail footprint. So I think that is going to be a large growth driver. We already operate work and provide our services to many of them. So I don't think our -- I think there will be a large degree of overlap or a similarity of our wallet market share of different types of retail sectors, similar to the broader industry. I don't think we'll be very different from that.

And while we talk about this growth opportunity, I think it will be good to just distract all of you also to think about other things which don't get attention in these calls. If you think of something as basic as currency transportation, we think that's a sector which has grown quietly over the last 10 years at least a 10% clip every year. We think this will continue to grow well at a 10% to 15% clip because -- at least just because every bank which you and I know of or we track or we invest into as a stock is looking to expand the number of branches in the country. That expansion of branches brings in its own currency logistics opportunity to carry cash back and forth, to process it, to manage it. So again, my point is that there is a need, at least in the foreseeable future for deeper financial inclusion and access the DBU is one form of -- way of trying to get a branch or a mini branch out there in a more automated manner without too many people involved out there. And I think all of them, again, in a DBU, you will have an ATM. You may have a currency recycler. They will consume cash. They will also have ways to open a bank account digitally without using too much human intervention. So our point remains that when you see financial inclusion rise in this country, you will see all boats will rise at a reasonable pace.

I would now like to hand the conference over to management for closing comments. Over to you, sir.

Thank you, again for your time and your patience. I hope our commentary and our question-and-answer session will help you understand our business better. We -- just to summarize, we are very focused this year on execution of our order book and making sure we build a good, sustainable and more predictable revenue base for all our investors in the coming years. I think we are well on track to meet all of our strategic objectives. It's been -- the first half of the year has continued to be a good half on the back of a good FY '22. And thank you for your support and look forward to talking to you at the end of our Q3.

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