Cash will always grow, is linked to economic growth: CMS Info Systems chief

In a Q&A, executive vice chairman & CEO Rajiv Kaul dwells on the firm's business structure, growth plans and the future of the ATM industry

CMS Info Systems, fully-owned by Baring Private Equity, is India’s leading largest cash management company. Ahead of its Rs 1,100-crore—which will entirely be an offer for sale (OFS)—the company’s executive vice chairman & CEO, Rajiv Kaul, spoke to Subrata Panda and Samie Modak on the business structure, growth plans, and the future of the ATM industry. Edited Excerpts:

How has the business structure of the company evolved over the years?

In the first phase of growth, our company was primarily a cash management firm. Later, we expanded to broader technology solutions around cash management, such as brown-label ATMs. In the last year and half, we have seen a tremendous amount of activity at public sector banks. We are at the right time and right place with a very good solution set. We have also launched a new service called remote monitoring system. We could also look at business correspondent services, micro-ATMs in the future.

Your IPO consists of only OFS. Does it mean that the company will not require any cash in the near future?

We have been a zero-debt company for the last two and a half years. In FY21, we had Rs 307 crore cash in the books. So, we have always maintained a profitable and cash-flow generative engine. We are focused on businesses in which we can get to profitability quickly. Also, we have been growing very well. Our profits for the last two years has grown by 32 per cent. In the five months of this fiscal, we have still grown our revenue by 15 per cent and profits by 20 per cent. Our business is not capital intensive.

How does one classify your business?

We are not wedded to a particular line of service. We are focused on the BFSI sector a lot. We have become a large outsourcing partner for them. Some parts of the services are around cash management, some are around technology. So, neither can you call us an IT outsourcing company nor can we be classified as a cash management system. From a classification perspective, we are a category creator. In some parts of the ATM network, we are also doing a lot of software work. We are number one in multi-vendor software for ATMs. We straddle all services and we are agnostic to the value chain, if you are a BFSI customer.

Would your revenues be hit, given the majority of your revenue comes from cash management, with people transacting more digitally now?

We are not linked directly to how often an ATM is used by clients. Very small part of our business and revenue is linked to ATM transactions. It is linked to the frequency of banks asking us to go to the ATM site to load the money or recover the money. And, that trend has not changed. Even in the Covid year, our revenue declined just 6 per cent. Our business and pricing model is fairly robust to take care of shocks like demonetization and covid. The average ATM transactions has dipped by only 5 per cent pre to post covid. Therefore, the ATM channel is quite robust. Having said that, we are more and more linked to BFSI outsourcing. The retail sector will become more formalised. Globally, retail cash management is a big revenue stream. In India, as the small shops become more organised, cash management opportunities will grow.

We think cash will continue to grow and currency growth is linked to economic growth. ATMs are just one part of our revenue stream, and fairly large one. We have got retail, currency in transit, remote monitoring, and software. I think there is tremendous for the next 5 – 10 years in ATMs and there is large opportunity in retail in the next 10 – 15 years because the formalisation is going at a steady pace.

So, ATMs are not going anywhere…

We have seen ATMs become a very core part of the infrastructure of reaching a consumer. It is a part of the core banking infrastructure. The rate of growth of ATMs may change but I don’t think they will start shutting down ATMs.

ATM charges have been hiked…

The RBI acknowledges that you need to drive ATM penetration, which had started slowing down in the last 2 – 3 years from 15 per cent a year to 4 per cent a year. So, the increase in interchange fees is to make sure that banks and deployers of ATMs can further deploy ATMs in the country because there is a need to do it. India has 27 ATMS per 100,000 people while China has 100. In Tamil Nadu, there are 35 ATMs per 100,000 people and Andhra Pradesh has 29. But UP, Bihar, West Bengal, and Rajasthan have 7, 10, 12, and 14 ATMs per 100,000 people. As many parts of India grow, ATM growth will also happen.

Will banks look to increase the ATM count, going forward?

If you look at the large public sector banks, each of them has increased their ATM counts. The banks are rapidly trying to upgrade the quality of ATMs. The public sector will do far more ATM additions because they are serving the last mile. SBI is also planning to add a large number of ATMs in the next 3 – 4 years because their base of customers is growing and they need to have an access point. The private sector banks have also been driving ATM penetration for a long time. For large private banks, it's systematic. Every year, they add a certain number of ATMs and shift some of them.