Radiant Cash Management Services Ltd incorporated on March 23, 2005, is an integrated cash logistics player with a leading presence in the retail cash management (“RCM”) segment of the cash management services industry in India and is one of the largest players in the RCM segment in terms of network locations or touch points served as of March 31, 2022. It operates its business across 5 verticals: i) Cash pick-up and delivery, ii) Network currency management, iii) Cash processing, and iv) Cash vans /cash in transit and other value-added services.
The company provides services across 13,044 pin codes in India covering all districts (other than Lakshadweep) with about 55,513 touchpoints serving more than 5,388 locations as of July 31, 2022. The company’s key clients are Axis Bank Limited, Citibank, Deutsche Bank Limited, HDFC Bank Limited, ICICI Bank Limited, Kotak Mahindra Bank, Standard Chartered Bank, State Bank of India, The Hongkong and Shanghai Banking Corporation Limited, and Yes Bank Limited. As of July 31, 2022, they had a fleet of 739 specially fabricated armored vans through a combination of leased vehicles and on a short-term contractual basis. This allows them to service clients across the length and breadth of the nation along with the support of a team consisting of 8,780 persons, including employees and contractual workers. It is backed by a reputed institutional investor, Ascent Capital, who has invested in the company.
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Promoters & Shareholding:
Col. David Devasahayam and Dr. Renuka David are the company promoters.
| Pre Issue Share Holding | 66.39% |
| Post Issue Share Holding | 53.21% |
Public Issue Details:
Offer for sale: OFS of approx. 6,060,606 equity shares at Rs. 1, aggregating up to Rs. 60 Cr and fresh of approx. 33,125,000 equity shares at Rs. 1, aggregating up to Rs. 327.94 Cr.
Total IPO Size: Rs. 387.94 Cr.
Price band: Rs. 94 – Rs. 99.
Objective: For funding capital expenditure requirements and for funding working capital requirements.
Bid qty: minimum of 150 shares (1 lot) for Rs. 14,850 and maximum of 13 lots.
Offer period: Dec 23, 2022 – Dec 27, 2022.
Date of listing: Jan 4, 2023.
Pros:
- Leading integrated cash logistics player in a consolidating industry present across the value chain of retail cash Management.
- The company has a pan-India presence with a strong network in tier-2 and tier-3 locations, and a fast-growing end-user segment.
- The company has a diversified client base with long-standing relationships.
- Robust operational risk management.
Risks:
- The business is highly dependent on the banking sector to generate revenues.
- Dependent on the use of cash.
- The business is exposed to operational risks, for which the company has incurred and expects to continue to incur risk costs and penalties.
Subscribe or avoid?
Sectorial outlook – Cash in Circulation (CIC) is the sum of cash held by banks and currency held by the general public. As per the below chart, currency in circulation has been witnessing an increasing trend along with the nominal GDP. In the last decade (FY 12-FY 22), CIC has almost increased three folds (at a CAGR of 10.5%), showing a positive growth rate for the period. (Source: RBI, Secondary Sources)A growth in CIC is essential for higher economic activity in the country and augurs well for the companies engaged in the cash management industry. While demonetization had a significant impact on CIC, the release of pent-up demand after re-monetization, wealth redistribution, and lower lending rates led to a v-shaped recovery of the total cash in circulation, which has since then almost doubled (in FY 21). Despite Covid, India’s CIC grew by around 32.5% between March 2020 and March 2022. (Source: RBI). As on October 31, 2022, CIC in India stood at a value of Rs. 30.8 trillion. CIC is predicted to reach Rs. 43.4 trillion by FY25, growing at a CAGR of 11.4%. As the demand for cash and cash-related services in India has increased, banks and other participants in India are deploying more ATMs, which is reflected in the increase in the number of ATMs in India from 121,847 as of June 30, 2013, to 222,762 as of June 30, 2017. They are also increasingly outsourcing their ATM operations and management to process and distribute cash to consumers more quickly and efficiently. The above factors along with the acceleration of financial inclusion in India over the last decade due to many high-impact government initiatives are expected to have a positive impact on the sector in which the company is operating.
The financials (revenue and net profit) are shown in the graph below:
Valuation – For the last 3 years average EPS is Rs. 3.52 and the P/E is around 28x on the upper price band of Rs. 99. The EPS for FY22 is Rs. 3.77 and the P/E is around 26.25x. If we annualize Q1-FY23 EPS of Rs. 1.51, P/E is around 16.4x. It has SIS Ltd (16.2x), and CMS Info Systems Ltd (16.9x) as its listed peers as per the RHP. The company’s P/E is between 28x and 16.4x. Net margins and EPS have been growing consistently in the last few years. Looking at the valuation, it seems to be in line with its peers.
Recommendation – The Company enjoys a niche place in RCM Segment with a lion’s share, especially in Tier 2 and 3 cities and cash is still a common and widely accepted payment option in India, which has been a cash economy for decades. While the government’s efforts to raise awareness about digital payments, as well as banks’ ongoing efforts to register merchants to join the digital payments ecosystem, have increased the number of digital transactions, cash remains the preferred mode of transaction in India because of its convenience for citizens in semi-urban and rural areas. It is the bedrock of daily life due to a lack of alternatives, widespread acceptance, and low transaction costs.
After considering all the factors the listing still seems fairly priced with good prospects, we would recommend “Subscribe” to this IPO for investors in a medium-term perspective, we expect cash remains the most preferred mode of payment when compared to alternative payment options in the medium term.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any investment decision.
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