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CMS Info Systems surprises with 20% rally after weak debut. Should investors exit or hold?

CMS Info Systems | Analysts advised investors to hold the stock for the long term, citing the company’s strong fundamentals and productivity

December 31, 2021 / 01:14 PM IST
CMS Info Systems

CMS Info Systems

 
 
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CMS Info Systems, India’s leading cash management company, debuted on the stock exchanges on a tepid note on December 31 and inched up to gain as much as 20 percent, beating analyst expectations and a muted grey market performance.

Healthy market conditions and strong financials with operational excellence lifted sentiment at the CMS Info counter, analysts said.

The stock opened at Rs 218.50, up 1.15 percent from the issue price of Rs 216. In initial trade, it gained solid strength, rising as much as 20.37 percent to Rs 260 on the BSE. The stock traded at Rs 256.55, up 18.8 percent, on the BSE, and was up 19.2 percent at Rs 257.50 on the National Stock Exchange at 11:18 hrs IST.

CMS Info traded with volumes of 33.9 million shares on the NSE and 2.14 million shares on the BSE.

After listing, most experts advised investors to hold the CMS Info stock for the long term.

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“We recommend holding the stock for long-term investment as the company, being a leading player in consolidating the market with strong fundamentals, has an integrated business platform offering a broad range of services and products,” said Astha Jain, senior research analyst at Hem Securities. “Also, the company has a track record of strong productivity and operational excellence with experienced and highly qualified management.”

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Swapnil Shah, head of research at BP Wealth, said CMS Info is a stock for the long term that enjoys dominant market leadership supported by a strong management team and has delivered stable financial performance.

According to Shah, the business is expected to benefit from positive industry drivers such as under-penetration of ATMs in India and the shifting trend towards outsourcing.

However, “in the short term, the business could be impacted if there is a third Covid wave. We suggest that long-term investors hold the stock,” he said.

CMS Info was India’s largest cash management company by number of ATM points and number of retail pick-up points as of March. It is also one of the largest cash management companies worldwide by number of ATM points.

Also read - Boom to continue | Rs 2 lakh crore IPOs likely in 2022 but all eyes on valuations

Its businesses include installing, maintaining and managing assets and technology solutions on an end-to-end outsourced basis for banks under long-term contracts.

The cash management services segment contributed 68.61 percent of its  revenue from operations in FY21, while managed services such as banking automation product sales, annual maintenance and software solutions contributed 27.88 percent.

CMS Info’s profit rose to Rs 168.52 crore in FY21 from Rs 134.7 crore in FY20 and Rs 96.14 crore in FY19. The Covid crisis caused some volatility in its revenue from operations, which fell to Rs 1,306.09 crore in FY21 from Rs 1,383.24 crore in FY20. The top line in FY19 was Rs 1,146.15 crore.

Risk factors

However, Prashanth Tapse, VP for research at Mehta Equities, recommended that investors exit their holdings on listing day.

“If non-allotted investors wish to buy on a listing day, it is better to wait and watch to accumulate at a better pricing range in the near future,” Tapse said.

He said the shift towards cashless transactions and the increased usage of digital currency could derail the company’s long-term growth plans.

“Also, the company did not get any money from the public issue for its growth as it was a complete offer for sale by promoter Sion Investment Holdings, an affiliate of Baring Private Equity Asia,” he said.

The Rs 1,100 crore IPO was subscribed 1.95 times during December 21-23.

“Considering that the entire issue was an offer for sale, which means existing promoters are selling their stake and no money will come into the company for its business needs, makes us a little uncomfortable about the reason and timing for the issue,” KRChoksey Research had said.

The brokerage is comfortable with the company’s valuation and medium-term prospects with the rise in currency in circulation, although it pointed out that there are risks including cashless transactions, digital currency, emergence of neo-banks (digital banks that deliver services through digital media), and laws pertaining to digital currency (the government plans to frame laws that will determine the future of currency in the economy.)

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.
Sunil Shankar Matkar
first published: Dec 31, 2021 01:14 pm
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