CMS Info Systems failed to get an impressive grey market premium and its public issue saw a lukewarm response from investors.
It was the 65th and the last initial public offering (IPO) of 2021. The issue closed with a subscription of 1.95 times during December 21-23.
All sorts of investors participated in the listing but the demand was very low. The portion set aside for retail investors was subscribed 2.15 times and qualified institutional buyers had put in bids 1.98 times their allotted quota, the part set aside for non-institutional investors was booked 1.45 times.
Experts feel the entire issue being an offer-for-sale by promoter Sion Investment Holdings Pte Limited received muted response from investors and low grey market premium. The market volatility through the last couple of months, tepid listings of last few issues and Fed tightening of stimulus added to the woes.
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CMS Info Systems is India’s largest cash management company based on number of ATM points and number of retail pick-up points end March 2021, as well as one of the largest ATM cash management companies worldwide.
“Despite a dominant position in the domestic value chain, the IPO was not able generate sufficient interest among the investors. Overall the issue was subscribed 1.95 times, which is significantly lower than the trend visible in the recent IPOs,” admitted Rajnath Yadav, Research Analyst at Choice Broking.
He further said that volatility in the secondary markets, abnormal listing of couple of latest IPOs, and global cues like concerns on inflation and faster-than-expected tapering and the air of an interest rate hike have been instrumental in making the market response lukewarm.
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CMS Info Systems traded at Rs 221 per share in the grey market, a premium of Rs 5 or 2.3 percent over and above the expected final issue price of Rs 216 per share, as per IPO Watch. It will make its debut on the bourses on December 31.
CMS Info Systems has raised Rs 1,100 crore from the public issue. Being entirely an offer-for-sale by promoter, the company will not receive any money from the proceeds, and all the money, besides issue expenses, will go to selling shareholder.
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Mohit Nigam, Head - PMS at Hem Securities highlighted six reasons that impacted IPO subscription of CMS Info Systems.
“First, its business depends significantly on the use of cash but the RBI is planning to introduce digital currency that will impact the amount of cash in circulation. Second, the company’s business is highly dependent on the banking sector in India and, any adverse development with respect to Indian banks can adversely affects their utilisation and demand for cash management services,” he said.
The company’s top five customers contributed 55.73 percent of total revenue in FY2021, and it is exposed to various operational risks as they handle large volumes of cash, which are third and fourth reasons, respectively.
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“Fifth, the success of businesses depends upon their ability to effectively deploy, implement and use information technology systems and advanced technology initiatives in a cost-effective and timely basis. Sixth, the offer is entirely an OFS and the proceeds from this offer will not be available to the company,” Nigam said.
The company’s cash management services business contributed 68.61 percent to revenue in FY21 and contribution from managed services business to revenue in FY21 was 27.88 percent.
It recorded higher profit at Rs 168.52 crore for the year ended March 2021, rising from Rs 134.7 crore a year back, but revenue seems to have impacted by COVID-19, falling to Rs 1,306.09 crore from Rs 1,383.23 crore. It clocked profit of Rs 84.47 crore on revenue of Rs 626.29 crore for the five months to August 2021.
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CMS Infosystems is also supported by the promoter, Sion Investment Holdings Pte Limited, an affiliate of Baring Private Equity Asia, a private equity firm that has over $27 billion assets under management as of June 2021.
In the financial year FY21, its top five customers in terms of revenue contributed 55.73 percent and top 10 customers contributed 75.13 percent. Its customer base of ATM cash management business is diversified, including over 13 MSPs (managed services providers), and service 45 public and private Indian banks (including HDFC Bank, ICICI Bank, Axis Bank) directly and through MSPs, as well as white label ATM deployers, as of August 2021.
“CMS Info Systems is a stock for the long term that enjoys dominant market leadership supported by a strong management team and has delivered stable financial performance. The business is expected to benefit from positive industry drivers such as the under penetration of ATMs in India and the shifting trend towards outsourcing,” said Swapnil Shah, Head of Research at BP Wealth.
“The business could be impacted in the short term if there is a third COVID wave. Besides, the issue did not gather much attention from the investors and thus is trading at a low grey market premium,” he said.
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