CMS Info Systems Limited ($CMSINFO)

Ladies and gentlemen, good day, and welcome to the CMS Info Systems Q4 FY '26 Earnings Call hosted by IIFL Capital Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth from IIFL Capital. Thank you, and over to you, sir.

Thank you. Ladies and gentlemen, good morning, and thank you for joining us on the Post Q4 FY '26 Results Conference Call for CMS Info Systems Limited. It is my pleasure to introduce the senior management team of CMS, who are here with us today to discuss the results. We have Mr. Rajiv Kaul, Executive Vice Chairman and CEO; Mr. Pankaj Khandelwal, CFO; Mr. Anush Raghavan, Chief Business Officer; and Mr. Puneet Bhirani, Chief Operating Officer. We will begin the call with opening remarks by the management team, and thereafter, we will open the call for a Q&A session. I will like to now hand over the call to Mr. Rajiv Kaul to take the proceedings forward. Thank you, and over to you, sir.

Siddharth, thank you so much. Good afternoon, everyone. I hope you all have the link to and you can see the presentation. And I hope some of you at least have had a chance to read our shareholder letter, which we published last night. If not, I would recommend you have a look at the letter also in parallel to get a better flavor of what we're going to talk to you now. So we're going to cover the last year. We'll talk about some of the wins in this year and the shift in our business, and we'll talk in detail about capital allocation, and then we'll quickly move forward towards FY '27 and FY '30. Slide #3. To summarize, FY '26 was a hard year. Even though Q1 was in line with our plans, Q2 saw a sharp impact from four factors which converged around the same time. To detail them out, there was a significant impact in H1 on consumption linked to a very prolonged adverse climate cycle and geopolitical issues. We think this had an impact of almost INR 25 crores on our revenue. The SBI cash outsourcing delay got us offguard with a significant investment in routes and infrastructure. This RFP closure delayed from February to April to December had a huge INR 100 crore revenue impact for us in the year. We learned and we have made fixes in our operating processes post that. The offsite ATM market contracted after AGS exited the sector, and many private and public ever banks were not able to find MSPs who are willing to deploy new ATMs on the transaction fee models. This has affected our ATM cash management business with revenue impact of almost INR 30 crores. So with all just these three items, the impact to our FY '26 revenue was INR 150 crores on our services revenue base. Had this revenue come in, our revenue growth for the year would have been 13% for services and 9% overall. We also, if you remember, had mentioned this in Q2. We had to give out larger-than-usual wage hikes, which are linked to our long-term employee settlement cycles which are done every 3 to 4 years. So overall, for FY '26, our revenue grew to INR 2,487 crores, which is about a 3% growth. And our services revenue, which is our annuity revenue, that grew to INR 2,312 crores, almost a 6% growth rate. On our part, we called for an analyst meeting as soon as things weren't looking good in September to avoid any surprises there and to share with you as we saw the lay of the land changing. And we took quick actions to fix and control what we could. In September, we told you about what we're going to focus on to try and address this decline. We have always maintained that a good management team has to focus on balancing revenue growth, market share and margin profile. I think we focus the remainder of the year on protecting our revenue and trying to gain market share, and the result is that our Cash Logistics business grew in market of 200 bps, and in the Managed Services business, we moved from #5 to #3 position. We have been always a big deployer of technology and leveraging it. We were able to accelerate that using AI, and we are able to drive significant cost efficiencies. Our immediate focus was on our route network, and using ML, we are able to reduce our route network by a sharp 10% in the September '25 to March 26 'part. Given the overall weakness in the MSP segment, we were able to drive a more sensible commercial model of fixed price contracts. Historically, the industry has not been to get off the transaction fee model. And I feel at this stage, for all practical purposes, the transaction fee model is dead in the ATM business. We, in fact, ourselves won a contract for INR 700 crores at a reasonably high transaction fee of INR 19 per transaction, but we still chose to stick to our principle of not doing any transaction fee business model deals. And we didn't want to take the risk. Even though this could have meant a INR 75 crore annual revenue to start with at reasonable margins in the first few years. We chose to preserve that INR 100 crores of capital for expansion and diversification into businesses which would have a more sustainable return metric. After years of strong growth in the prior years, we also examined our longer tail of lower-yielding customers and tried to drive price increases where possible and, in cases where we couldn't, we migrated some contracts where the prices did not make sense. We also significantly tightened DSOs around our Managed Services business segment. Our OCF-to-EBITDA ratio in H2 was 173% compared to a negative 14% in H1. We had told you that we will be making a big investment in technology, and even in a tough year, we continue to do that. In fact, we ramped up our tech investments to almost INR 40 crores of investment, which is 1.6% of our revenue, up from our usual 1% of revenue in the prior years. We also made a significant investment in our gig delivery model of INR 115 crores. We feel this is very critical to convert some part of our fixed cost network into a variable cost structure and for expanding our retail business into Tier 3, Tier 4 markets in India. The Q2 deterioration was arrested by Q3 and we sharply recovered in Q4. Q4 saw a 6% Q-on-Q services revenue growth. In fact, if you notice, we have given you a 12-quarter trajectory. We have been sort of stuck in the INR 535 crores to INR 575 crores services revenue for 8 quarters and have meaningfully broken out. In February, we had mentioned that Q3 will be the bottom for us on margins, and we aim to expand margins by 150 to 170 bps in Q4 and another similar expansion in FY '27. I'm glad to report that we are able to sharply improve margins by 280 bps in Q4. So overall Q4 services revenue is at INR 609 crores, 6% growth. The total revenue for Q4 is INR 633 crores at 2.4% growth. EBITDA for Q4 at INR 162 crores, which is 15% Q-on-Q growth, but flat year-on-year. PAT for Q4 was INR 79 crores, 38% growth Q-on-Q but a 19% dip Y-o-Y. The full year numbers on services revenue at INR 212 crores at 6% year-on-year growth and overall total revenue at INR 2,487 crores, 3% growth year-on-year. EBITDA for the year at INR 600 crores, negative 5%, and PAT of INR 303 crores, negative 20%. The EBITDA and PAT numbers mentioned here include the wage impact. Now for historical purposes, we will show you the second breakup. However, we have guided you to the fact that segments no longer make sense anymore for us because this was our IPO when our business was mostly 70% cash management, 30% managed services. That split since then has moved to 60-40 and last year went to 55-45 split given we were able to drive a lot of our business and growth towards integrated contracts, where splitting a margin is not possible and feasible. So on our overall EBITDA margins in Q4 have gone -- from last year, Q4 was 22.6%. That dipped to 15% in Q3 and have come back up to 19% in Q4 of this year. For the full year EBIT margins for '26, they have contracted by 360 bps from 19.2% to 15.6%. Let me shift gears now. After patiently waiting for the right opportunity and the right price and valuations for the last 4 years, we finally did two acquisitions in FY '26. We have kept you periodically abreast of our M&A thinking plans and the sectors of focus. We have intensely worked on 15 opportunities, letting some go after a lot of time, analysis and investment of time. Either the sectors finally didn't make sense to us to take a risk on or the valuations were way out of our comfort zone. All of this experience has sharpened our approach how we quickly screen deans deals and the terms we operate on. The two deals in the year specifically: Securens is a key deal for us to scale in the Vision AI segment and to grow this business. The deal has closed and integrated and will be accretive to us in FY '27. In Q4, we signed our contract deal with FSS for the Managed Services business. This not only helps us consolidate the Managed Services segment, but more importantly, for CMS, it allows us an entry into midsized private banks for cross-selling. It also helps us influence and shift those contracts from a transaction fee model historically to fixed fee models when those contracts expire. We hope to close this and integrate this deal at the end of Q1. We have been able to drive this shift of transaction to fixed fee by showing the value of such contracts to the largest banks in India, and the rest of the market will follow in a matter of time. I'm now on Slide #9. As we talked about M&A, I wanted to talk about capital allocation. This is covered in significant detail in the shareholder letter we have published last night, and I would request you to go through that later. But to summarize, our IPO was an offer for sale, no capital raised. Over these 5 years, the company has averaged a high 70% OCF-to-EBITDA and generated almost INR 2,275 crores of cash, out of which INR 1,000 crores have gone in for organic growth into capital investment. In fact, even if you look at the trends of CapEx investment, we have invested capital when we have been clear and convicted of the investment opportunity and the returns on it. So we went from an average of INR 200 crores of CapEx investment in FY '22 and '23, and it dropped to INR 100 crores in FY '24 and '25 as most of the contracts which were being bid with transaction price and the prices are very low and we stayed out of those businesses, which affects our FY '25/'26 growth, but we preserve capital for better times. In FY '26, in the middle of the storm, we upped our CapEx spend significantly to drive higher growth in the coming years. And we have invested INR 350 crores of CapEx in FY '26. Dividends or broadly in terms of shareholder returns, I think, have been linked to PAT and have grown each year until FY '25. We have returned INR 438 crores through dividends to shareholders, including a special dividend we did in FY '25. To those of you who know us well, CMS is a self-funded compounder and not a grow-at-any-cost operator. Let me pause before I move to Slide 10. We are seeing a significant change in the business mix, which is critical to our transformation journey and to continue growing at our historical growth rates. This slide shows you a massive shift in the customer mix. In our private years, our growth was led by the Managed Services segment and SBI. Due to the transaction fee model being impacted in the country, and that affecting the growth opportunity, we have been steadily and consciously diversifying our base to other large banks, especially in the private sector and retail segments. So you can see the sharp shift in the mix, which was 58-42 in FY '25. End of FY '26, this mix has shifted to 48-52. There's a very big shift in just 1 year and will hopefully accelerate in the coming years. Slide #11. At the Analyst Day, we introduced to you a new way of thinking about CMS, and we identified the three platforms we think will lead our growth to FY '30: the ATM Management Solutions, the Retail and Currency Logistics business and the Technology & Payment Solutions. These businesses were a 63-37 split in FY '22. And in the 4-year period, you can see this mix change again in these segments. It's 58-28-16. The Technology and & Solutions business has had a significant mix change from 7% to 16% of revenue. In fact, it was 12% revenue last year itself. This is now a INR 370 crore business now for us. And what is driving this shift is HAWKAI, which is now INR 200 crore revenue and has doubled for us in the last 2 years. Through the Securens acquisitions, we have scaled this business significantly. We today have 50,000 sites live, which are being actively monitored by our software. Think about this. This is a phenomenal scale when you compare this to the fact that it took us 20 years to get to 70,000 ATMs, 20 years to get to 65,000 retail points but 4 years to get to 50,000 RMS sites. This is targeting a large INR 8,000 crore TAM for us. Within BFSI, which has been historically our strength, we have quickly moved to gain a market-leading market share of 36%. That is the power of this technology-oriented business. We end FY '26 with a solid order book, not only from size, which is INR 2,000 crores, but even if we say so, it's a high-quality wins. None of these deals is linked to any transaction fee linked contract. All of them are fixed fee models. We are especially proud to have had a unique year. We had 3 huge deals and wins from SBI, ICICI Bank and HDFC Bank. These are marquee banks. And to have big contracts, long-term contracts signed for CMS [ these years ] is huge for us and gives us a good tailwind as we move forward into the coming year. In fact, these contracts helped us secured 85% of the FY '27 targeted goal we have. And we have these contracts in hand and going live. End of '25 itself, we have set out our FY '27 revenue goal. Despite the hit we took in FY '26, we are still maintaining that revenue as a goal. Our services revenue goal remains at INR 2,700 crores to INR 2,800 crores, which will mean a 17% to 21% growth on FY '26 numbers. At an overall revenue goal, total revenue, we are targeting INR 2,800 crores to INR 2,900 crores, which would mean a 13% to 17% growth. On margins, we have historically never guided on margins. And there are emerging pressures on possible impact to consumption linked to inflation or geopolitical impact, but we are still aiming to be in the 25% EBITDA margin range. Q4 has helped us significantly ramp up margin profile, and we will look to maintain and defend that in the rest of the year. We've had a lot of feedback on this topic in the last 9 months. It seems to be a favorite topic for many of our investors. Our position on shareholder return has been very clear. We will do what is equitable and fair to all classes of shareholders. And in the prior years, it didn't make any sense given we weren't fully clear on our capital needs for growth. Also, the taxation structure was unfavorable to many classes of shareholders. The taxation since then have changed. We have done two deals. We have invested a significant INR 350 crores of CapEx last year. And we have weathered the FY '26 storm, and we are well positioned for the coming years. With clarity on our capital needs and our cash balance of INR 650 crores, the Board has approved INR 168 crore buyback, roughly 3% of our outstanding equity shares at INR 3.40 price point. After this buyback, we'll still retain certain liquidity for our foreseeable growth needs. As a team, we have meticulously focused on a higher TAM as a goal for us and to help us continue driving high growth rates. Our 3 platforms today target a TAM of INR 20,000 crores. We are seeing a strong market consolidation, and linked to that, repricing upside opportunity in the coming years. Over the last 4 years, we've grown our services revenue at 12% CAGR. This includes the slower years in FY '25 and FY '26. Over the next 4 years, we see our opportunity to accelerate this growth to a 13%, 14% CAGR, which is more in line with our historical growth of 15% CAGR. Thank you for your patience and your belief in a tough year. And with this, we end now and move on to Q&A.

[Operator Instructions] We'll take our first question from Baidik Sarkar of Unifi Capital.

It's been a tough year overall hope. I hope '27 and beyond is better for you and the team. A couple of questions. Like you alluded to in your opening comments, there was softness in private bank ATMs in H1 of last year. How is that sentiment overall behaving today, and that, especially in the context of what's happened in the last 2 months? They're all macro at a global level, but does come into things at a country level as well. How are you leading decision makings there? And this question is from the perspective that our guidance of INR 2,900 crores is a very strong task. The exit that we have in Q4 revenues are roughly INR 2,500 crores. And of course, the HDFC wins probably adds to what takes that number to roughly INR 2,600 crores. So since we still need a line of sight to balance the incremental INR 300 crores, how would you rate the quality of the decision making in this environment and the probability of us getting to that?

Baidik, let me answer some of your questions. First of all, let me take the one on what is happening to the overall ATM industry, how are banks thinking about growth. As Rajiv spoke and as we also shared earlier, we are starting to see 2 or 3 trends. The first has been the shift in the mix of banks preferring to move from what we traditionally call ATMs, which are cash dispensers, into recyclers, which enable them to transfer a lot more of the transaction banking activities from a branch to an ATM side. So this can do cash acceptance, it can do video KYC, it can do card issuance. So it's sort of similar to what a digital banking unit would have delivered. So we saw banks change that. And the second is a change which has been pushed by primarily CMS of urging banks to switch from a transaction price model to a fixed fee model. I think in some of earlier calls, we had told you how the effective market clearing price for transaction fee has been constantly inching up higher. The last RFP that a one bank did, this came up close to INR 25, which is anyway, it's not an economical price for the bank given [indiscernible] at INR 19. So in FY '27, the 6,000 to 7,000 units that we see in different stages of bank RFP pipeline planning, mostly all either product purchase and with subsequent services outsourcing or will be a fixed price outsourcing deals. The second point on how are we thinking about our revenue shift. Similar to our last call, our goal at that point in the end of Q3 call when we spoke to you in February was to exit FY '26 on a strong revenue momentum so that we enter Q1 with about INR 650 crores of revenue. So between INR 570 quickly of Q3 to INR 650 crores for Q1, INR 609 quickly is sort of a step in between there in Q4. So a lot of the execution and order execution as well as revenue ramp-up of some of the new wins that we've had are underway. So the INR 650 crores should get us to INR 2,600 crore run rate. It also means that through the year, we have to win and deploy about INR 100 crores of products, and the balance is things that need to be -- additional orders, which need to be executed. If I look at FY '26, we won about INR 2,000 crores of overall orders, of which we have close to INR 400 crores to INR 500 crores of work which are still to be executed.

On the margin front, I understand the fuel inflation is something that has just happened. In our typical pricing, how does pass-through work on our ATM runs? Is this something that we can pass on overnight? Or do we have to absorb until this gets escalated.

I think there's a room in the routine to how we've done this over the last decade, decades and a half. We've sort of been as a company and the team been through various inflation and cycles, benign ones and more difficult ones. Different playbooks, different tools. Simply put, there are some of our contracts which offer a CPI, WPI-linked inflation increase. Our effort is to constantly have more contracts move into a regime like that. For the ones which don't, we do have periodic price resets. So effectively, I think the way I would look at it is as we move from '26 to '27, we also shared in our analyst meet in September when we met that we are trying to pass -- get price increases across a lot of our contracts. So the normal inflation-linked increases get set off with price increases, which are part of these efforts on an annual basis. In case there are some things which are more extraordinary or things that we can't plan for, it may be a certain stage which have undergone a much steeper minimum wage increase or fuel price increases which are beyond normal, those are times where we try to pass on a price increase which is outside these annual cycles.

I think the industry gets together at these moments to discuss with the key clients. Again, it's really [ relationship ] from the value of drive. So some of it is some of -- I don't think it's directly linked to headline inflation. I think either is linked to our contractual terms or negotiations which are logically based and where the ground reality is. The private sector engagements, it is far different than it will be the public sector.

No, no, I understand. Mine was a very topical question given what happened yesterday on the price hikes. So the simple point thing that does it represent a risk to our 25% margin aspiration? That's the thing I'm trying to drive at.

Yes. No, no, so I think it's a fair question, Baidik. And you've known us for some time, we are very reticent on margin forecast because not always easy to control what our competitors will do and the market will be. I think we've had a good Q4. We don't want to get carried away with extrapolating that sentiment into next year. I think we will want to wait and see what happens in Q1. Right now, there is just unknown volatility given we all feel in India that a lot of the price impact on fuel may have been deferred for whatever consideration. So let's see this play out. We've seen one price hike yesterday. I don't know what more will come in. We don't know what will happen to work from home as a concept right now. So I think we'll wait for Q1 to see how things pan out. But our effort, given the investments we have made and the nature of our contracts, some of the M&A we have done is to get to our 25% Zip Code. Sitting in May, impossible to tell you today if we will hit it, achieve it or miss it. I don't think there is significant risk as of today, but we would prefer to be conservative on this. If we are able to drive the revenue growth, I think it gives us a better margin to -- I mean, like last year, we talked about, and I think, in the Q2 or Q3 call, we did wean away some of our lower-yield retail customers. That's revenue gone but also lower margin business gone. So if we have to sort of wean away some business at the end of the year. If you drop INR 25 crores, 30 crores, INR 40 crores revenue to maintain a higher margin profile, we'll look at that in H2.

Just a question before I get back. There seems to be a ramp-up in our depreciation cost. I understand that the acquisitions have not yet been closed, the FSS one. I'm just curious, what's driving the sequential ramp up from INR 56 quickly to INR 59 crores of depreciation?

Depreciation ramp up, you said? Sorry. Depreciation, there is some change.

So during the year, we have done around INR 350 crores of the CapEx. And as well as the Securens, we have already added. So related to that, the depreciation has increased from INR 54 crores to INR 59 crores.

And just the last question on the FSS acquisition, is it expected to be earnings accretive from the first year itself? Or we wait before it turns accretive?

Let's finish the deal in Q1, Baidik, and after that, we can tell you better.

[Operator Instructions] We'll move to our next participant, Praveen Kumar from Equitas Capital Advisors.

Am I audible?

Yes, Praveen.

The investor letter was very -- it trended in a very heartfelt and frank manner. Thanks for writing that. I had a couple of questions. One was, if I look at your FY '27 revenue guidance, if I were to do something like a pre-mortem on that, assuming, let's say, 1 year down the line for some reason, that's not achieved. What are the top 2 or 3 reasons you would know that happening? That is the first question.

That's a great question. Can you tell us a second while we think of the answer to that?

Sure. Second question was on the kind of transaction-linked kind of project that you walked away from, which happened in the later part of '25, right? I just wanted to understand which of the other -- I mean, did any of your competitors take up that? And because you have been hinting that industry is moving more and more towards the fixed price model. But I was just wondering, given that size of contract, was it taken up by someone? And so how do you look at that?

So where we are right now on revenue, and I think Baidik also referred to that, the INR 633 crores, you extrapolate that right now, just out of simplicity, into 4, that gets you to INR 2,500 crores. We are executing and going live on the HDFC contract, which should get us another INR 50 crores, INR 75 crores revenue in the year. That gets you to closer to the INR 2,600 crore number. Now we are talking about another INR 200 crores of -- I'm talking about the bottom end of the range, let's forget the higher end of the range right now. INR 200 crores, I think there are orders and order wins which could help us contribute to that delta. What could go wrong on the revenue side right now would be if there is a sharp dip in consumption in, let's say, Q1, right? Because Q1 is then into a four issue. There could be risk to consumption both at the retail side or at the transaction per ATM level. We have seen in March and April a dip in currency supply in the country, which impacts ATM transactions. So I think if that trend continues, let's assume, for the next 10, 12 months, there could be a INR 50 crores, INR 70 crore impact on the revenue. Unlike last year, we don't have a -- I mean, last year forecast was based also on INR 100 crores of revenue we were presuming would accrue to us from the SBI contract which didn't happen. We don't have that risk right now. We don't have any such large risk, which is sort of assume to happen and therefore, could sort of dip. Whatever is in the math is a contract either going live or already signed. So there is a delta from INR 2,600 crores to INR 2,800 crores, absolutely. I think within the rest of the year, we need to go work hard to INR 100 quickly. So that's answer to your first question. Your second question was, did somebody else take the contract? Yes, should we name it? No. And will those ATMs go live? Hopefully. And will we get some part of the business from them? We should. But again, it's really at INR 90, I think it's a great price because that's the max you can really get today. For us, it was really about could we foresee us making money over a 7-year cycle of the contract? And we couldn't. I mean, we could, but not at the levels of the threshold and the return metrics we have. I've said this historically also to some of you is that growing our business is not challenging. There is business. But growing this business at a 25% Zip Code and EBITDA margins, the ROCE levels is a challenge. And therefore, for us to keep aspiring to grow double digits, maintaining the return profile is something we have created as a ring fence around ourselves, and we have to keep maintaining the high threshold. So I do think there will be some players who can make reasonable returns on that project. There is a little more risk. We prefer to take the INR 100 crores and deploy it when we find a segment or a company where we like the return ratios more in favor to what we prefer.

We'll take our next question from the line of Umang Shah of Banyan Tree Advisors.

I had two questions. First question was in the analyst meet last year, you have broken down the Cash Logistics business into ATM cash, retail cash and CIT. Can you give that number for FY '26?

Umang, would you like to ask the second question as well?

Yes, yes. I'll do that. Sure. And sir, we see that offsite ATMs are reducing by private sector banks, and we also see a number of transactions as per RBI data coming down. In this context, why would banks want to increase offside ATMs? That was first part. And second is that between off-site and on-site ATMs, do our services change? And if yes, which is more profitable?

Let me answer the second one first. A very good question. It's a trend that we had called out early that we are seeing a shift between the behavior of on-site and off-site ATMs. Like I said, I think banks at a point have changed reasons for why they need a certain network and scale. If you'd ask me this question 5 years back or 10 years back, both private and public sector banks expanded ATM growth rapidly, mostly on the back of independent ATM deployers or what we call the BLA model, executing this on a transaction basis simply because there was a significant arbitrage to be earned between interchange fee, which is what one bank settles with the other versus the cost of running an ATM network. So it made sense for banks to invest and create ATM capacity, which is probably running ahead of what they truly needed in terms of their debit card issuance and spread in terms of savings account. Five years back, we started seeing some banks, specifically the private sector banks, changing and taking a pause, saying, this is not about having the biggest or the largest network. It's also about using the network for the right reasons, which is driving penetration and growth in newer areas that they are entering into. So if you set up a branch, you typically wanted the branch to be surrounded by 1 or 2 ATMs. It helped in building CASA. It also helped in branding and distribution. Right now, if you sort of see what banks are doing, they're treating the ATM channel as a way to effectively act as an alternate servicing mechanism to their bank branch. So it's not just about cash distribution or cash withdrawals anymore. It's also about trying to cater to the customer life cycle and the needs. So some of the work that we're doing, and let me take ICICI Bank as an example, 2 years back, they had, I think, about 20% cash recyclers and 80% cash dispensers. Two years since now since we've started working with them, it's gone the other way. We're at 80% cash recyclers and 20% dispensers. And now to most of us, we still call an ATM, an ATM. But fundamentally, from the views of a banker, a cash recycler provides service to a whole set of customers who are otherwise walking into a bank branch to deposit the cash. These could be SME customers, these could be traders, these could be retail accounts, but all of those then moves into a cash recycler. Second, as we are going live with the ALGO MBS software this year, that allows a bank to upsell a lot of the value-added services or a lot of the nonfinancial banking services and package that into a cash recycler. So this would be account opening. It could be video KYC. It could be asking for a cross-selling a loan, which is specific to you as an individual, not just a traditional loan product. It could be instant card issuance. It could be passbook updation in the context of public sector banks. So I think we are seeing the cycle shift. Banks are willing to commit their own CapEx as opposed to getting private parties to put up CapEx here. And on the back of those CapEx, they're looking at transferring a lot of the expensive transaction banking activities from a branch to a channel model. I'll just go back to our question on the split. I think if you look at it, we also said we will resegment our revenues into the 3 platforms. So all of ATM cash goes into ATM Solutions, we have retail and CIT combined, and we have Technology & Payment services the specific mix of those splits are captured in our presentation.

Yes. I think as the cash-MS split, we said it the 60-40 historically has gone to 55-45. Beyond that, I don't think we don't have the numbers. We are starting to internally just focus on the 3 platforms and measure them. That split is already mentioned. And I think you talked about the transactions and the stability.

We'll take our next question from the line of Divyansh Gupta of BMS.

I have three questions for FSS business. The first one being that whatever revenue that FSS was doing, some would be to CMS and some will be to other players. So how are we thinking of moving all of that business to CMS? Or will the contract expire and then only CMS will take up those business revenue opportunities? The second one is more a basic question and a buildup on that. The fixed fee versus, let's say, transaction, does it get fixed at FSS level? And if yes, then is there a certain percentage of revenue that FSS is currently doing on transaction basis, which that leads us to some bit of exposure to that kind of revenue stream? And the third one is that while we have mentioned that there is a cross-sell opportunity of HAWKAI and ALGO MBS, do the current client base do not have that offering, and therefore, it's more of a let's say, be doing an inception sale to them that these are the advantages? Or it's a replacement of existing vendors, and therefore, again, how do we see that time line moving to CMS?

So let me go one by one. As far as the first question is concerned, so the contracts that we are transferring from FSS would be all the managed services contracts. Now for FSS, they're already one amongst the largest cash management partners. So I think when we talk about incremental revenues, it's mostly the parts that were not attributed to us in terms of managed services for these ATMs and possibly for some that we are outsourcing to others. Right now, in terms of -- when we have sort of done our internal math in terms of -- the focus is really more on getting the customer innovations done, bringing back the quality and stabilizing those networks for the banks. We're not really right now thinking too much in terms of arbitrage of what we do versus what other people do. I think fixing the quality and stabilizing work is our focus right now for Q1 and Q2. To your second part, yes, there would be some contracts of this which would have a transaction exposure. However, again, the reason that we are differentiating this from what we typically bid for is in contracts like this which have already had 2, 3, 4 years of transaction history and aging, it's a lot easier to understand how those ATMs are performing and to take certain calls of what needs to continue running, what investments you need to make to either fix and improve the sites or what ATMs need to be shut down. It's an entirely different call from a capital allocation perspective of bidding for a new contract going and hunting and chasing and setting up those sites and then waiting for the transactions to come.

So I do want to add here a couple of points here, Divyansh. One is FSS, and if you're aware of the company, has run a very good quality managed services business for the last decade. It's a respected name both on the technology side and what they've done for banks and historically done very well. For their own portfolio needs, it's a business they were looking to maybe exit for some time. We, as a company, have analyzed maybe 5 managed services providers from acquisitions at different points of stage of time. In our mind, FSS business is the highest quality business out there in the sector, the client relationships and the profile of the work they do. The transaction-linked business, which is there, I think a very good question, has thankfully been contracted mostly to, what I would say, a high-quality base at reasonable price points. There may have been some impact in the last 1 year to that base of business basis given how overall transactions have occurred, and that reflects in the deal value the pricing which we have negotiated. And we also have a trend line on when these contracts can end and what we can upsell and how we can convert them. To your question on cross-selling with the HAWKAI primarily, let's say, HAWKAI and ALGO, it will be new opportunity, right? It will be a new opportunity for us if you're able to crack 1 or 2 deals. I think that will be totally accretive. The HAWKAI business, I again think that some of the midsized banks haven't really deployed aggressively or they are doing it, I would say that, with a smaller quality or a lower-quality vendor and not across the whole base. Consolidating this also -- as we said, CMS was the #5 MSP. Before FSS acquisition, we became a #3. Post that, I don't know what happens to the stack rank there, but also helps us consolidate and deliver some synergy and cost savings automatically, right? Because the team which is going to be handling a larger base of ATMs both at a manager level itself helps us drive some synergy out there.

Got it, got it. And the second question was the revenue ramp-up that you mentioned, right? let's say, INR 625 crores in INR 2,500 crores, a GFC around INR 250 crores, INR 260 crores. And just looking from a lower guidance perspective, what would be the ramp-up of the SBI and ICICI contract? And rather on a general basis, if we've been a 7-year or 5-year deal, how should we think the revenue ramp-up happening across deals?

Well, I think the Excel modeling, I'll leave it to you. I think we have given what information we should share about some of these customers and contracts. I think the SBI contract is over a period of 7 to 10 years. The ICICI, GFC ones, other can correct me, is about 4, 5 years, roughly. He says it's longer. And HDFC is how many years? 5 years. So all of the revenue is not going to be exactly delivered by 5 in the first year. Obviously, some of it is linked to either a pricing change or to a base increase. But for simplicity, divided by the number of years, we are just assume that will flow through for the first year itself. Also, the basis don't remain static, right? Basis change, right? There is churn always. If something gets shut down, something has added. We have take -- I would love to say this is [indiscernible] order, but we won't know, right, of how the base of the machines changes with some of these banks over a period of time. This is basis what we have right now.

We will take our next question from Govindarajan of CSIM.

I have a couple of them. One, there seems to be heightened activity, M&A activity across the globe in this space again. So first question is, especially on NCR and Brink's merger, would you see any opportunity or threat? Do we run a Hitachi kind of risk here? I know it Brink's is very small, but just your thoughts on that.

And go on the second question.

Yes. My second question is, see, you still have a reasonable exposure to -- about 28%, I think, is what you mentioned MSPs. And that space, at least the smaller ones, have struggled to find funding. So of that 28%, are there still any of the MSP customers of yours who you would classify as at risk in terms of their own balance sheet, their own ability to get funding, their ability to pay you up? And a related question is, in your balance sheet, I see about INR 58 crores of loans and advances. I'm guessing that is to a client. If you could just talk about the thought process around that.

So on NCR and Brink's acquisition, so we'll see how this spans out. I'm sure they'll get regulatory approval to do this around the world. I don't think they will -- we are sort of looking at this and saying they are too small or too big. I fundamentally feel the base we have in the network and density we have in India is impossible to replicate. It's something I've mentioned towards the head of my letter also, saying you cannot replicate what CMS has in terms of network, reach and density. Can that mean that at some point of time, NCR and an MSP customer can ship some base to Brink's and Brink's invest to grow? Absolutely. But I think we have time to ramp up, and therefore, I mean, I don't think necessarily our diversification are linked to that. But I think our expansion business will make sure that we have enough growth to compensate for some of these trends if it happens. Is there any opportunity? I don't think so. There's no opportunity, right? But is there a risk? We presume there will be risk. Will that finally pan out or not? I don't know. But I do think this is a more complex global merger. If I was sitting at Brink's in the U.S., my priority would be to focus on the top 5 markets, which for them is U.S., Canada and large geographies in Latin America. These are complex deals where global teams have to align and merge. And therefore, far away in other countries, let's see what the impact is and when it comes in. Brink's, for those of you who are aware and not aware, in India is predominantly a player focused on the bullion space and global bullion, they are the largest company and huge and do a great job on that. They have some network presence in India but linked to basically, I think, the larger tier cities. In the cash management space they are a very small player. And I think if they had to scale in India, this would need significant investments across the country to invest in infrastructure, vans, routes and all to -- and let's see what that happens. We know when we know on this. Your second question was on the MSP base. Yes. So I think the 28% of as we -- we finished FY '27, you will already get in FY '27, let's see what the base of revenue from the managed service customers comes into. But you're right, that sector is going to be -- as I said, the prior growth was led by some of these customer segments. The next 4, 5 years growth will not be led by these segments. And so therefore, for us to model, we are modeling as a lesser growth from the these segments. But the slack will be picked up by our expansion into the new platforms we talked about and some of the newer customers, especially the larger private sector banks we talked about. And your third question was linked to loan, advancing the loans. Pankaj or Anush, if you know...

Yes, I'll just quickly cover this. So if you recollect about or 6 months back, and I think in our third quarterly call, we spoke about some of the midsized MSPs being under liquidity stress and us going about solving for this in different ways. So as we speak -- and we've also said that by end of FY '26, we hope to sort of have these addressed. So as we speak, with one of them, we entirely solved for it. The DSOs have come down. We have much lesser exposure. With the second one, we've made this announcement in in FSS, post the acquisition will be a combination of our receivables from them plus a cash consideration. And in the case of a third MSP customer, we've converted what was our exposure into a secured outstanding, which was backed both by physical assets with a significantly higher cover, but also more importantly, getting access to receivables directly from the bank including an escrow facility, which covers both the loan amount as well as the normal work that we enter for them.

Okay. So basically, you've converted unsecured receivables to secured loans. That's the right way of thinking about?

Yes, unsecured to secured plus getting the collections from their banking customer directly into an escrow.

Okay. Just one small clarification. My question on the exposure to MSPs was not in terms of growth opportunity, but in terms of risk of further receivables issue. Of the 28%, do you see any of your customers having any issues on balance sheet?

No. I think we took a provision last year already in Q2. I think the activities we have done which Anush detailed about should cover us from any potential risk in this area.

We have Darshan Shah from Multi-Act Equity Consultancy.

Am I audible now?

Yes, Darshan. Please go ahead.

I'm from Multi-Act. I had two questions. The first one is on the margins, right? So while we've guided on EBITDA margins, reverting back to 25% plus for FY '27 and also for the longer term. But if you really look at the cost structure below EBITDA, right, our depreciation over the last 3 years has jumped from almost INR 132 crores to and INR 210 crores approximately for FY '26. So as a percentage of revenue also, it's changed by about 1.5 to 2 percentage points. So in terms of EBIT margins, what is the thought process? And because these investments, when the yield results in terms of better EBITDA margins, et cetera, that is one. And second is on the buyback. So what would be the participation from Mr. Kaul on this buyback? And what is his view on whether they will be participating in tendering their shareholding? Yes, those were my two questions.

Darshan, I think let me tackle the first one, which is -- so I think when you look at FX in context, you should also look at it in terms of how our overall construct or the structure of our business is changing. We are switching from being a 70% cash business to investing into longer-term growth potential, especially around our technology businesses. Those will necessitate more upfront investment but will yield results and more recurring revenue streams on a 5 to 7, 8-year time period. So the context of CapEx investment and depreciation would mostly be linked to some of our longer-term investments. And you should also see in the light that in FY '26, we did get headwinds in the form of consumption weakness slowdown and transaction impact, especially for some of our -- both ATM as well as the retail business. So in a way, sort of the margin and the structures are weathering both of these ups and downs. As we think about FY '27, there will always be a sort of a lead and lag effect from an EBITDA and PBT or a PAT perspective as when you look at Securens or we look at FSS, I think we would normally want to assume that it would take a few quarters for the synergy benefits to kick in, whereas the depreciation gets recognized from day 1. So we do hope that over a period, things should get better.

Also, Darshan, I think in the last couple of years, Pankaj has alluded to in his comments that the right way to think of the ROCEs, apart from this year, have been fairly strong in the 25% range. I think we're focused on that. To your second question on participant buyback, especially you called me out, but I don't intend to participate in the buyback at all.

We'll take our next question from [ Amish Kanani ] of Nova's Investment Managers.

Congrats for the margin recovery and top 3 banks in our bag. First question, sir, how do you see the pipeline this year since these 3 large contracts is already done? How do you see the other contracts you did mention in the presentation that we are looking at some 6,000 to 8,000 ATM, looking for moving from fixed fee pricing model. But just in general, how is the pipeline vis-a-vis, say, last year? Is it looking similar, better or maybe a little lower because of the 3 large contracts that we've already had? And in that context, maybe you can cover the FSS acquisition. You did mention we have a lot of mid-cap banks, [indiscernible] in our city. How are we planning to cross-sell? So maybe pipeline in the context of those new clients, bank clients that we have?

So very valid points, Amish. I'll just start off by saying despite all the headwinds and challenges that we are in FY '26, I think INR 2,000 crores order wins has been amongst the best years that we've had. We've executed, I think, as I said earlier, close to about 75% of this. So there is still 25% of work to be done in terms of this execution. So that's -- we enter FY '27 with just -- I suspect Q1, Q2, H1 really sort of being fairly intense year from an execution perspective that some of these orders to be rolled out, the integration of FSS and just generally looking at how the macro setup is. We do see in FY '27 banks coming back into the refresh cycle. They've taken a pause in FY '26. We see them coming back into this. However, I think it is a little early for us to comment on how exactly this will work out simply because given how the overall situation is, we do have some RFPs, which are in different stages of the pipeline. But I think we'll wait to maybe at the end of our Q1 or Q2 call to comment about how exactly this is panning out.

The margins, we had a fairly good margin bump up in Q4 over Q3, though Y-o-Y looks [indiscernible]. The question is, sir, if you can explain the nuances of the margin maybe within cash versus the other business. At an EBIT level, there's a huge swing in the cash business. The question is, where does this come from? And if you can give us some flavor of the improvement that has come versus volume versus price increase that we have had because of the low pricing that we had in the past. The question is from 25%, we do understand that our aspiration is to maintain. But how much is due to, say, a better pricing versus operating leverage? And we understand the fuel price hike is a big overhang. So how do we think -- how have we improved it and what are the levers that we are using to kind of make it stable and maybe improving?

So Amish, I'll just quickly jump in. If you go through our past calls, we really don't get into this level of detail on margins. I think for us, given FY '26 was a significant dip, we sort of went out on a limb to say we will push back our margin profile. But you're right, I mean, a significant part of the -- as revenues start climbing back up, you get the operating leverage, and the work which Puneet and his team have done on rationalizing our routes, Anush and his team have done and trying to get pricing hikes and the new fixed-price contracts, I think that all starts contributing back to the margin profile. Your question, I also think would be linked to how much of this is sustainable in the future. Don't know. I think we have a good base. Q1 historically -- not historically, seasonality-wise, is a lower margin profile basis, wage hikes and increments and whatever happens. We'll wait to see how Q1 goes through. We will also finish all our contracts, but then we have almost done all our contract execution. The new one, HDFC will go live this quarter. And we will have a better sense of the year on the margin side, I think cash and managed services are totally they are fungible really. It's very difficult to sort of for us to even call out how much is where. And overall fuel cost and vehicle cost as a percentage of our business is roughly about 6% of our overall revenue. So if that goes up by x percentage, you can start doing some calculations on that. We have built a pretty tight operating network. I also do want to caution here saying, as we roll out new contracts and new businesses, there will be expansion and investment back into our route network and all. You can't exactly time it to quarter-by-quarter. But hopefully, we should be able to maintain those sort of margin profiles.

We will take that as the last question. I will hand it over back to the CMS management team for the closing remarks. Over to you, team.

No. I mean, really, I don't have anything more to say. I think we have given out this time a fairly detailed letter, which normally would have come in the annual report. We thought it's a good trend to get it more widely at the end of the year for every investor read that specifies and details out exactly the way we are thinking so that you are able to both get a better sense of the business, what we are doing, which can be covered in the presentation accurately and also hold us accountable for it. We are still maintaining our North Star goal of FY '27 and FY '30 despite having a reset in FY '26. Not easy, but we feel quite confident that we have done a super hard work in the last 6, 8 months to fix things which were breaking down and the things which were under control. And wish us all the best, and thank you for your belief and patience in a tough year, and talk to you at the end of Q1.

Thank you so much. On behalf of IIFL Capital Services Limited, that concludes today's conference. Thank you all for joining us. And you may now click on the Leave icon to exit the meeting. Thank you for your participation.