CMS Info Systems Ltd

NSE:CMSINFO

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Q4 FY '24 Conference Call of CMS Info Systems Limited. CMS Info Systems Limited is India's leading business service company providing logistics and technology solutions to banks, financial institutions, organized retail and [indiscernible] companies with the presence of across cash logistics, managed services and technology solutions. The CMS platform today includes ATM and retail cash management, banking automation, ATM as a Service, a lot of remote monitoring, software solutions and card personalization capabilities.

The management team will be using a presentation to take you through the highlights of the year. You can view the same through the Web link. The same has also been uploaded on the website and the exchanges. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Achal Lohade from JM Financial Institutional Securities Limited. Thank you, and over to you, Mr. Lohade.

[Achal Lohade, analyst]

Thank you, Nirav. Good afternoon, everyone, and we are very pleased to host you and the management team of CMS Info Systems for the Q4 and FY '24 earnings conference call.

We have with us today from the management team of CMS Info Systems; Mr. Rajiv Kaul, CEO and Executive Vice Chairman; Mr. Pankaj Khandelwal, Chief Financial Officer; Mr. Manjunath Rao, President, Managed Services; and Mr. Anush Raghavan, President, Cash Management Services. I now hand over the call to Mr. Rajiv Kaul for his opening remarks and presentation, post which we can open the floor for Q&A. Over to you, Rajiv.

[Rajiv Kaul, executive]

Thanks, Achal. Good afternoon, everyone. Pleasure to have you on our call with us today. We finished FY '24. Just a quick highlight financially. A very robust year, both in terms of revenue and margin growth. We had 18% revenue growth and about 23% margin growth, while maintaining a very solid OCF conversion.

We also ended the year, our cash and cash equivalents grew from about INR 450 crores to INR 70 crores. And the dividend payout recommended for the year by the Board is close to 25% of FY '24 PAT.

If I move to -- I'm on Slide 3, moving to Slide 4, for those of you who are on the Web link. The highlights of the year for a very important year, 2 years since we listed. It's our fifth consecutive year of 20% PAT growth while maintaining very high return ratios. Our ROCE in this year expanded to 27.4%.

It is also an important year for us where we transitioned in ownership, and we have now become one of very few unique companies in India with 100% publicly owned. Now this is something which has happened, I think, in far ahead of any one's expectations as investors and even ahead of my expectations. And hopefully, this will take away one of the concerns we would have had about some potential overhang of the stock with the PE ownership.

Our win ratios in this way, we doubled our win rate with almost INR 850 crores of new order wins in our MSN Technology business. 2/3 of this happened in the second half of the year. And we had alluded to delays in the RFP process cycle, I think, but we saw a lot of them coming to close and getting awarded. And I think that provides us a good base of growth for the coming years.

Our [indiscernible] tech business contribution and revenue grew to almost 40%, ahead of our guidance of for FY '25, I think this was achieved in FY '24 itself. And most importantly for us, as a team, I think it was an important incubational year. We did talk at our Investor Day on May 23 about trying to incubate 2 new businesses. I think we've made tremendous progress in understanding the landscape, the opportunity set and what CMS can bring to the table. And therefore, we also have investors in talent.

We were -- earlier in the year, we had a new CIO, Rajiv Bhatia, who joined us from a banking and a tech perspective. He had worked with Infosys, Axis Bank and lastly, at Swift as CIO. And towards the end of the financial year, we hired a senior President-level officer. I think is our first president level hire in the company after a gap of 12 years. Putin Virani comes to us with some exceptional experience across tech and operations in companies like Infosys, Baidus and Ola, and will lead our consolidated operations for CMS.

Important as a team for us to talk about -- I'm moving to Slide #5, to talk about a longer-term track record. We do keep a focus on the quarter and the year. But I think if you think of it from a last year perspective, our numbers are very solid, whether in revenue or PAT or EBITDA growth and expansion of margin profile.

And as I like to remind some of you who may be new to our calls, our track record of growth and performance over our life cycle of a company being created in 2009 to 2024 over a 15-year period, our revenue growth has a CAGR of 17%, EBITDA CAGR of 19% and top CAGR of 21%.

The last 3 years are substantially higher than that. And all of this goes -- all of this result are important to us because I think we keep focusing on building a business which is more predictive. And therefore, our focus on generating and creating new service lines, which can deliver annuity and recurring business is very important, and it helps us work hard to make sure that there are no negative surprises to our shareholders.

In terms of when you think -- look at the bottom table, the PAT growth over the last 12 quarters. Other than in Q4 FY '22, I think each quarter had more than a 20% PAT growth year-on-year. And the revenue profile will show you how we have scaled from a INR 37 crore revenue in Q1 FY '22 -- INR 370 crores to INR 627 crores in Q4 FY '24.

On Slide #7, I think this is important to us as we continue to build different business lines, as we continue to build our platform. Some things culturally and the value system wide remain the same at CMS team. We look for business segments in which we can build market leader, and they have a strong cash flow generation capacity so that we can continue to deliver high ROCEs. And that capital, which we generate, we look to invest in growth, whether it's the same lines of business or new lines of new adjacencies. At the same time, paying a steadily increasing dividend to shareholders.

With that, I'm going to pause. And I'm going to -- we're going to dive deeper into a little more flavor of the various businesses. I'm going to invite my colleague, Anush, to take you through some of the key business highlights and developments.

[Aasim Bharde, analyst]

Thank you, Rajiv. Good day to everybody on the call. In the previous 2 years, our cash logistics business has grown lease by 20%. This was primary driven by our ATM growth, increase in share and compliance revenues.

As we enter FY '24, we exited a contract in our CIT business, which has impacted our full year growth by 2.5% to 3%. However, since then, we've been able to regain that volume through the year and end the fiscal on a positive note. In our ATM cash business, we had a flat volume for the year in line with the broader market.

As ATM deployments, which were linked to RFP execution, were delayed or deferred towards the end of the year, we instead focused our efforts on leveraging our network compliance to improve pricing and yield. This, in turn, resulted in a revenue growth for the ATM business.

As we now enter FY '25, we see volume growth coming back, basis RSPs, which have been awarded and rollouts, which have commenced. We had very good traction in our overall business point addition and gained 13,000 points through the year. These were all attributable to retail cash management or the RCM business. This represents a 25% growth in points for RCM as the result of our efforts in FY '24 to drive a very focused effort in expanding the market in the retail sector.

I'm now on Slide 10. And I would like to sort of use this to talk you through the broader opportunity and what is our approach here. And this is not something that we may have detailed in the past. We see the retail cash industry is today serving just about 150,000 business points. These are mostly being sourced by the bank based on their lending relationships.

The overall opportunity here across organized retail, financial services, health care and utilities is more than 550,000 points, and this is growing at 8% to 10% annual growth. We have invested in a sales organization to drive this in a fairly focused sector-by-sector approach. Now in the case of banks, the decision-maker is usually the business of operations team.

In retail, when we talk to the senior leadership there, we usually engage with either the CFO or the treasury teams, and their challenges stem from being able to reconcile order sales to settlement cycles, having a store-specific MIS and also figuring out what are the ways in which they can better handle in-store cash payments. We have leveraged our strength in technology and built several automation solutions, which either get deployed in store or they get integrated via APIs with the retailers. This, in turn, creates a more sticky and resilient relationship for us over the mid to long term.

As we move forward, we plan to integrate our AIoT remote monitoring and offer an end-to-end solution towards retail outsourcing. I will switch gears now. I'm on Slide 11, and we'll talk to the Managed Service and Tech Solutions.

We had a stellar Q4 with revenue growth of 56% and a solid 35% growth for the full year. In addition to that, we were also able to secure incremental order wins of INR 1,850 crores, most of which will get deployed in FY '25 with revenues accruing over a 5- to 7-year timeframe.

In our remote monitoring business, we have crossed 25,000 sites, and this represents a 10x growth over the last 3 years. We are now developing our own integrated platform here, which will help in pitching for projects which are more complex and at the higher end of the technology curve.

In Slide 12, what you see are some broader trends of the overall ATM market. You see, ATMs in India has an average life cycle of 8 to 10 years. India today has about 250,000 to 260,000 ATMs as an installed base. So you could expect that every year, there will be about 25,000 to 30,000 ATMs, which come up for replacement, in addition to a growth of about 3% to 4% in the overall network.

Given the fact that we had a massive expansion of the ATM network way back in 2012, 2014, many of books are now due for replacement, and hence, the current refresh cycle. Increasingly, during the replacement, banks are wanting to outsource the entire ATM network management, which significantly increases the addressable market for companies like us.

At CMS, we have had a 25% win rate of contracts in FY '24. And you need to understand and see this in the context of us being a relatively new entrant to the sector, and we have a current market share, which is in the mid-teens. What helps us with our win rate is actually a vertically integrated platform, which not only reduces handoffs, but significantly improve uptimes and deliver far superior quality of service and helps in better cost efficiencies.

Moving to Slide 13. And when you look at it from a -- what is the CMS enterprise sales strategy, it's actually quite simple. We just focus on 2 things. First is to increase the number of offerings to our customers, and the second is to have a deeper penetration across key customers. We have gone from having only 3 services in the past to 8 solutions right now. This portfolio approach has helped us with managing the cyclicality of any 1 business, and it helps us become a partner of choice for customers.

Over the years, the success of our enterprise sale strategy is evident in how we've been able to grow our strategic accounts. That is accounts which contribute more than INR 100 crores of revenues per year, which used to be only 3 in FY '21 to 8 in FY '24. I think with that, I'll just take a pause and hand over back to Rajiv to talk about FY '25.

[Rajiv Kaul, executive]

Thanks, Anush. I think this is an important slide to sort of communicate 2 things from our side. One, this hopefully gives you a view into the opportunity and how we think of the opportunity for us going ahead. And secondly, more importantly, I think it's important to understand this slide helps you understand the value we bring to our customers and the trust -- and to make them trust us so that they can do more with us. Of course, all of this is dependent on our focus and ability to execute very strongly each year.

The FY '25 outlook -- before I give the FY '25 outlook, a quick reminder to those of you who may be new to us. What are we finding cheering out here? What is the opportunity for CMS at a broad level? I think we are sort of linking our future to 4 themes, 3 themes are more. The formalization of consumption is really linked to a broader macro environment. As India grows, the GDP grows, GDP [indiscernible] increases, the GST-led reforms lead to more formalization at treaties in interest opportunity for CMS.

At the industry level, this is a very clear driver towards more and more outsourcing of current lines of business. And then from a CMS perspective, I think when we think of our broadening our solution sets, as we are able to launch new solutions and succeed with them, that brings them alpha for growth.

So if you're a drill down in cash logistics, I think Anush has already talked about opportunity. The opportunity the opportunity I want to point to is really more midterm. I think from the next 5-year perspective, we see the market is ripe for a broad play in currently just outsourcing. This market has sort of -- India has got roughly about 4,000 currency in checks. Less than 300 of them are outsourced to third-party companies. CMS does some of those. There is a lot of learning. And we feel that going forward, with the technology refresh -- upcoming technology refresh cycle in the way currency is processed by banks, there is an opportunity for this to become outsourced to large, high-quality companies in the sector.

Managed Services, I think we have talked about. I think here, there is a very big opportunity on how ATMs will shift from being bank-owned to being owned on private sector CapEx. Our approach here is to be very conservative. The transaction-linked ATM model is not somewhere we bet too much on. We prefer this outsourcing of ATMs and recyclers with the banks, are more open to doing this on a fixed cost basis, thereby reducing any potential risk in transactions in the coming decade.

Our IoT business, AIoT business and ARMs has done extremely well in the third year of operation. There is still a very large portion of ATM and bank branches, which have not yet deployed this type of a solution. The ones who have deployed this in the last -- the 40% which have deployed this in the last 5 years, 6 years, will come up for an upgrade and a refresh cycle. We are investing into building very strong AI and machine learning-based solutions, which will give us an edge or any other competitor.

More importantly, we talked about the fact that there is going to be an opportunity to go beyond BFSI. We are looking and we are, I think, in the immediate adjacency of NBFCs and insurance, but we are also seeing a large opportunity potentially coming up in the broader public sector arena out here.

M&A Partnerships have been a very core part of our evolution of the company. We have done about 7 very programmatic small- to medium-sized deals over the last 10 years. We have a very good partnership with a large global OEM on the ATM side, and we look to do that in the coming years. We have already identified areas of expansion through M&A and partnerships, which are listed here. And hopefully, in FY '25, we hope to make some progress in scaling some of these efforts.

From an immediate interest to you, FY '25, we had a target of doubling our revenue from FY '21. I'm on Slide 16, which is basically sort of 2x growth, 18% type of CAGR. We have, in the first 3 years, over achievement that we are still guiding to the INR 2,500 crores to INR 2,700 crore revenue range, though we feel reasonably confident to be in the upper end of that range.

Important to also highlight a couple of things. The opportunity set where we are focused and where we have already got service lines, that presents a TAM opportunity of roughly INR 22,000 crores for the industry in FY '27, thereby leaving enough headroom for us to grow in the coming decade.

The last 3 years have been the growth for us has been led by the growth in both volume, market share and pricing on the ATM cash side. The whole entry into managed services and BLA and our launch of the AIoT remote monitoring business. Where we sit today, and of course, this can change over time, but where we sit today and we think of what will drive the alpha and our growth, we think our retail cash solutions should grow at a substantially higher level than the rest of the business. Our AIoT business is poised to -- for a scale-up and to double from the current levels in the coming 3 years.

Our integrated managed services solutions stack is building out very well, whether it's software, managed services, fixed price contracts. And then if we are able to make headroom in some of the new identified business lines, I think all of them provide the potential for alpha generation and growth in the coming 3 years.

With that, I'm going to sort of pause and get answers back on the line.

[Operator]

[Operator Instructions] First question is from the line of Kunal Sharma from SP Capital Financing.

[Unknown Analyst]

So congrats for the good set of numbers. So I wanted to ask on the -- if I'm not wrong, we have a ratio of 60% and 40%, right, 60% from the cash and 40% for the managed service business. So however, the growth and margin are quite strong on the Managed Service side. So can we expect going forward, the vice versa, like 40% from the cash and 60% from the Managed Service, if you could just highlight the same.

[Rajiv Kaul, executive]

Well, I think, Kunal, we were -- the split was roughly 70-30 a few years ago. We guided towards getting to a 60-40 split by FY '25. I think we are seeing also our cash business grow very robustly. The margin profile of cash business is obviously much higher in CMS. I don't see the reverse happening in the next 2, 3 years because all the business lines are growing very strongly now.

We were to have new service lines, which are not in the current stack today. And if they scale very well, then I think the -- obviously, the percentage contributions of both the MS and cash will be very different.

[Unknown Analyst]

Okay. Okay. Okay. So -- but still, there's a growth from the cash logistics still tender nearly 10% to 11% as compared to the Managed Service. And even we can see over and across the globe that the PI and all the [indiscernible] keeping -- going up significantly. Like it was that I think it was just 2% or 3% now to the strain, and 10% to 11% from the UPI side. So that is what we think we wanted.

[Rajiv Kaul, executive]

So I think the cash business grows for us. Let's comment in our business, I think, has grown at almost 30% for the last 2 years. Or the last immediate prior year has grown at about 11%. If you look at some of the global strategics in Europe or U.S., I think they're all seeing 7% to 9% or 10% growth in the cash logistics business.

So if you have to take a forecast, we aren't guided to our cash segment business growing at a 10% to 13% over a midrange, and our Managed Service business should grow higher. So I think -- I don't think you'll see a dramatic shift in contributions to the overall business unless we have some new big businesses which enter our mix.

[Unknown Analyst]

Okay. Okay. Okay. Second question on that huge opportunity in this Sur area. So how are we tapping this opportunity as far as the new ATMs and the Managed Service is concerned?

[Rajiv Kaul, executive]

I think for CMS, we have a fairly large network already established in the country. 60% plus of our network was already in Suru. So as and when any new retail store in Suru is coming up for cash outsourcing or an ATM is being set up or available for outsourcing, I think CMS is one of the prime contenders to be doing that work because of our deep network already there.

And we continue to expand our network. But I think one of our -- if you go to our platform slide, I think one of our biggest advantages and USP is depth of our network of the country.

[Unknown Analyst]

Okay. Fair enough. Okay. There's a Slide #7, there's a CapEx during the FY '24 has gone down drastically to INR 99-odd crores, and which is held into high ROCE. So what is the reason behind that? And what is the outlook for the FY '25 in the CapEx term?

[Rajiv Kaul, executive]

So it's a very good question. We have guided as a team to a CapEx or sort of our CapEx run rate need of about INR 200 crores per year. But we also tell people, given the nature of the order cycle, execution cycle, don't look at it year-on-year, look at it in chunks of 3 years.

In the prior 2 years, I think we had a capital spend of roughly about INR 200 crores approximately. This year, because some of the project RFPs got delayed to second half and order placement cycle got referred to that, the CapEx has slipped into FY '25. So FY '25 CapEx will be higher because of the underspend in FY '24.

[Unknown Analyst]

Okay. Understood. Understood. And lastly, to just highlight on the CIC, what was the CIC during FY '24? How was the industry then in the cash position in India as compared to GDP?

[Rajiv Kaul, executive]

I think that the CIC growth, which was reported recently was about 7% to 8%, if I'm not mistaken. And CIC, the GDP ratio, I think it's 12%, 13%-ish, somewhere in that ratio.

[Operator]

[Operator Instructions] The next question is from the line of Prakhar Sharma from Jefferies India.

[Prakhar Sharma, analyst]

Rajiv and the team, congratulations. Great numbers and good to see some group times lining up. Just a couple of things. Rajiv, it's good to see the order book seeing a very strong growth between last year and this year. Could you help us just get a broader sense whether the order book has broadly, let's say, as you were saying just before this, a higher capital intensity. And if that is true, then how should we look at like is margins, EBITDA margins is the right way to look at it? Or we should look at operating margins? That is question #1. .

[Rajiv Kaul, executive]

You want to take the second one. Maybe I can give you a shorter answer.

[Prakhar Sharma, analyst]

Okay. The second one is basically, how do I -- how do we look at the market share gains in the ATM rollout. You used to have like 44%, 45% market share at the time of IPO. So I just want to get a broader sense of how is your increment market share in the incremental rollouts or even refreshes looking like? These are the 2 questions.

[Rajiv Kaul, executive]

Okay. So I think the first question is a great question, really appreciate it. The way I would like all of you to sort of think about and the way we think about it is we sort of look at our ROCE trends. The capital we generate, high cash flow generating company. We feel that we have the capability to deploy the capital for getting better and better returns for our shareholders. And that's where we see -- we talk about ROCE numbers.

From an order book perspective, I would say maybe 2/3 of that will need some capital deployment. Obviously, the ratios will be different payback peers to a different project to project. The one which I saw a sense where people get a little uncomfortable in the analyst community is really linked rather transaction-linked BLA business.

I think our returns there have been very good and very solid because we have been very picky. We don't do more than -- I think our total installed base of transaction-linked brown label ATMs will not be even 5,000 ATMs. So maybe we're less than that, 3,500 ATMs or something. That's it.

So we are -- we have positioned size this business where we can do it only there's a high capital return. And if I have to think of the order book for the last year, I think less than 1/4 of that will be linked to this nature of business.

Your second question is around -- in market share of cash. I think the ATM cash market share was pre-IPO, I don't remember, I think it was 43%, 44%. And now I think in the last 4 years, this number, I know has gone from 39% to 49%. I don't exactly have each in terms of percentage of new deployments and new wins, but I know the market share gain has been 10% over the last 4 years.

And in this year, it would have increased nominally because this year was more of a flattish year because the orders have got issued in, whatever, December, January call be March, the rollouts are starting to happen. But I would like to extend your question to give a broader answer to the folks on the call. As a team, we have said that it is our duty to focus on market share, revenue growth, margin profile. Sometimes more sense in that order, right? That's the way we think.

We are very focused on maintaining and increasing our market share across all our lines of business. All that honestly doesn't happen every quarter every year, but I think that's where our not started. So needless to say, I mean, when any new [indiscernible] being placed, I think we are working hard to make sure we maintain our market shares.

[Prakhar Sharma, analyst]

Just to reconfirm, I think your number of 44% around the time of IPO is correct. So would it -- were you saying that 44% has gone towards like 49% or something like that?

[Rajiv Kaul, executive]

That's right. That's correct.

[Operator]

[Operator Instructions] The next question is from the line of Abhishek Sinha from Bodh Capital.

[Abhishek Sinha, analyst]

Congratulations, team, on a good set of numbers. My question is around the increased receivables. I think as a percentage of sales, it has gone up to 32% in FY '24 versus 27% in FY '23. Could you please throw some light on why this has happened or is this going to subside soon?

[Rajiv Kaul, executive]

Pankaj?

[Pankaj Khandelwal, executive]

So it's Pankaj. Our AR is largely dependent on last quarter's gross revenue. Gross revenue remains into [ 0 ] GST. If you see the DSO based on that, March '24 DSO comes to around 87 days, which has improved from September, which was 95 days, and slightly increased from March '23, which was around 80 days.

The minor increase is due to increased ratio of the managed services and tax business, where the customers are largely PSU banks and the payment cycle is around 10 to 15 days longer. So that is the reason the AR has slightly increased from -- DSO slightly increased from 82 to 87 days.

[Abhishek Sinha, analyst]

The second question is on Slide #10. I wanted to understand basically this Retail 360 solution that we have built. A, is this built fully in-house? And second, isn't the space already intensely very competitive? And what is our outlook on this one?

[Anush Raghavan, executive]

I can answer. Anush here. So I mean, as with most things that we do in CMS, we take pride in using our core technology skills to be able to cut solutions to the needs of the customers. I think perhaps the misnomer here is when we talk about payment automation, you may be comparing us with pure-play payment companies who are more focused on the digital payment side.

What is of context to us and in our partners, we're talking of cash payment automation. And in fact, I think that is a space which is offering itself as a very interesting opportunity for us to be able to see how do we blend our reach, our quality of service and bring on board a lot of technology automation to make a cash payment equivalent to a digital payment in the eyes of a retailer, the ease, the efficiency, the reconciliation and the fungibility.

[Operator]

Next question is from the line of Pranay Jain from DealWealth Capital.

[Pranay Jain, analyst]

So I wanted to understand on the cash logistics business, do we see where things are now moving, growth can be in line with our company average? Because we've been expanding pretty well on the business front network. And while our focus has been on ATM pricing and yield improvement, anything you can share on the end here?

[Rajiv Kaul, executive]

Sorry, could you just repeat the last part of the question? Your voice wasn't very audible.

[Pranay Jain, analyst]

What is the kind of improvement we expect in ATM pricing and yield over the next 12 to 18 months, along with the growth on the cash logistics business as we continue to expand our business points network?

[Rajiv Kaul, executive]

So I think Anush can answer that. But overall, I think we've already sort of mentioned this in the deck, that we look at our cash logistics business the way it is today, which is ATM cash logistics, retail cash flow and cash in transit, to grow in the midterm over the next 3 to 5 years at a 10%, 13% rate.

This may go up a little bit of new lines of business like currency check outsourcing come in, or if we see a higher number of bank-owned ATMs getting outsourced or getting faster outsourced to cash management. I don't think there's a -- it's possible to give you a specific of what the yield and pricing will run like. We only talk about the past, what we have done. And then we hope the future will be in line in the direction we understand the business.

[Pranay Jain, analyst]

So are we taking any new measures for improving the ATM pricing or yield? Or we are quite satisfied with where we are pressing?

[Rajiv Kaul, executive]

I think this would be important for me to comment on a broad call it. I think that is -- I will try and resummarize the work you said. As the company and the team, our focus is first on market share, next on revenue growth; third, on margins. We try and balance all of these 3 objectives every quarter, every year.

But if you are a pick into we focus on market share. We can't predict competitive intensity in the future basis where we are today. I think we've had a good track record of growing this business at double digits throughout the history, and we hope to do that in the coming years.

[Pranay Jain, analyst]

All right. And my second question is, is it possible to share an outlook on the order book and order win momentum? Because we haven't seen very good progress in increasing the wallet share. So just wanted to get a sense what could be the order win run rate as in? Do we look for more room in margins or again, given the competitive intensity, do we expect margins to be where they are?

[Rajiv Kaul, executive]

I mean, if you have to -- let me take a step back and sort of take some pride in what this team does. I think our margin profile is world class. I think they are very solid, much higher than most companies you can track anywhere in the world. I don't want to set expectations of constant margin improvement. I don't think that's something which is reasonable to expect.

When you think of from an order win perspective, last year, we had -- last year, I mean, sorry, FY '23, we had about INR 90 crores order wins. This year, we've had about INR 1,815 crores. Impossible to forecast a number for the year because there are so many factors, type of contracts that come from bidding, how people bid, it's very -- we can't predict how people and the market will do.

We will try and maintain a healthy order win ratio to make sure we are continuing to build annuity line of business in line with our growth aspirations.

[Pranay Jain, analyst]

All right. And anything on the M&A opportunities we think we can close in the next couple of quarters? Or we're still far out? That's my last question.

[Rajiv Kaul, executive]

I think trying to predict when a deal will close is a month's game. I would really not know.

[Pranay Jain, analyst]

No, [indiscernible] I was asking. If we see any inorganic kicker or not really?

[Rajiv Kaul, executive]

No, we are working on opportunities. We have been working on opportunities. I can't forecast the time of closure. But we are working on inorganic opportunities fairly intensely.

[Operator]

Next question is from the line of Rashmi from Tunda Investments.

[Unknown Analyst]

A couple of questions. So if I look at the ATM population in India, the last 5 years, it has been growing at around 1.5% CAGR with on-site growing 3.5% and the off site is declining 1%. Now given this, how do you ensure growth in this particular market for us? Because you've talked about refurbishment, et cetera. In the next couple of years, how do you expect growth there given this? Or are we growing more in the on-site and less in offsite?

[Rajiv Kaul, executive]

I think you should look at this as different parts of the value chain. Let me first tackle it on the ATM cash business. One way to try and model for a sense of what the future could look like over a mid- to long-term horizon is to think about what should be the overall base growth of the overall network, which just based on demand supply, how transactions are growing, what is the need for incremental ATMs in the country. Should be in a 3% to 4% range overall.

That, along with what could create incremental demand for us in terms of switch from what the banks are doing themselves to outsourcing, which is 80,000 to 100,000 ATMs [indiscernible] referred to earlier, which is not currently outsourced to CIT, creates another 3% to 4% growth potential. That, combined with further yield and pricing, creates a sort of a double-digit growth opportunity for us in a 10% to 12% range.

Coming to the Managed Service -- sorry.

[Unknown Analyst]

What were the ATM cash business?

[Rajiv Kaul, executive]

I think coming to the Managed Service parts of the business, that is sort of where I think the combination of replacement, refresh cycle, as well as new purchases are critical. Like I said, on an average, an ATM life cycle is about 8 to 10 years. So one could anticipate that on an annual basis, now it doesn't happen perfectly every year. But there will always be some something to cater of RFPs and contracts, pan CapEx or CapEx by private players. But that longer-term horizon should create a 20,000 to 25,000 annual ATM replacement cycle.

The key thing is here to think about that what are some of the larger external macro drivers which will spur either the growth of ATMs or incremental investment into the sector. And the largest one is obviously change in [indiscernible] change. Interchange is really sort of for us acts as an overall revenue. It helps increase overall revenue share for the industry. It helps, first and foremost, white label participants increase investments in the sector, format by private sector banks and then public sector banks.

[Unknown Analyst]

What is the impact in [indiscernible]?

[Rajiv Kaul, executive]

So interchange is pretty very simplistically is the fee that one bank pays another bank when they cargo transaction of the bank. So that's what it is. So for offer transactions.

[Unknown Analyst]

In terms of the trade receivable write-off and impairment relevance of that and doubtful assets, how it does stand out for this year? And have you taken any increase in provisions?

[Rajiv Kaul, executive]

I'll hand it over to Pankaj for his answer.

[Pankaj Khandelwal, executive]

So provision for impairment and bad debt reduced from 5% last year to 4%. And as we guided earlier also that because of the mix change from cash to MS and tech, as well as more compliance, CapEx, timely contribution by banks and use of the technology has helped us to reducing that impairment and the bad debt reduced from 5% to 4%.

[Unknown Analyst]

Got it. In terms of absolute amount, what is that?

[Pankaj Khandelwal, executive]

It was INR 90 odd crores last year, and this is INR 90 crores.

[Unknown Analyst]

Third question is that if I just look at retail cash, right? So what I understand from talking to some of the top private sector banks is that they are not adding any touch points. They are not providing this as a service to more of their clients. And because it's a cost center, which they want to progressively reduce. However, from our side, we have seen an increase in the touch points. So I just want to understand what -- I mean, how is it taking place? Because individually, these banks are reducing their -- the service they are giving to the large clients. Or is it coming from e-commerce for you?

[Rajiv Kaul, executive]

I think there's no -- to take a slightly longer term drive into the last 8 years of what has happened to retail and more importantly, organized retail. You see there's been a fair bit of churn and choppy waters for them, starting with demonetization, implement of -- implementation of GST, the onset of COVID. And from a physical or organized retail perspective, they also have to deal with uncertainties around what happens to e-commerce, e-commerce growth, to what extent does it impact the business. I think it's only in the last 2, 3 years that a fair degree of clarity certainly has emerged. And we've seen organized retail invest for growth significantly and aggressively. That has given us the confidence to create our own organizational bandwidth and capabilities to engage with retail directly. Or we prefer to sort of engage with them through a bank.

So when I sort of bear with you a detailed approach to how we're thinking of retail, you're absolutely right. I think the banks are a certain point of view. But I think as I reiterated earlier, our goal here is to find a way in which we can be a collaborative partner to retail, and bringing on board our solution set and our technology to just help with easing the whole payment cycle.

[Unknown Analyst]

Got it. So you're pushing on the retail. I mean, your -- the person who would pay you will be the retail and not the bank.

[Rajiv Kaul, executive]

I think there's a broader market. See, our banks are focused on a particular set of customers with basis the reach, basis the amount of currency passing through and whatnot for where it makes sense for a bank to engage. There is a much broader market which a bank may not be wanting to or willing to serve, which is the opportunity which we think. When Anush talked about the 5.5 lakh points out there, it's a much broader market that will need partnerships with banks, fintechs and with payment banks, which is the approach we are taking in being able to address the needs of that segment better.

[Operator]

[Operator Instructions] Next question is from the line of Devanshu Mawar from Galar Boca Stockbroking.

[Unknown Analyst]

The first question -- I have a couple of questions. The first question is how AIC reverse monitoring solution will help at BFC's insurance and public sector? And the second question is for FY '27, the TAM INR 26,000 crores approximate market size. So what kind of market share you are thinking about it?

[Rajiv Kaul, executive]

So on your second question, I think we have sort of alluded to an aspiration give us some time when we do the detailed Analyst Day to talk about our FY '27 targets. Right now, very focused on making sure that FY '25 gets achieved.

In terms of the remote monitoring sector, there is -- so there are very different technology type trends which are going out there. The entire monitoring space, the security space, we are in banking, I think we sort of understand very well in banking, we are seeing a big move from disparate solutions at ATMs and branches moving to more of a converged solution.

In retail, we are seeing a lot of analytics being on offer in public sector. But a very large -- I wouldn't say, it is a large public sector deployments of CapEx into new infrastructure, whether that is smart cities, whether that is railways. And I think all of that is coming along with a strong component of remote monitoring solution need to run their infrastructure in a safer and more efficient manner, including if you think about the entire electric vehicle recharging opportunity, there are solutions that are being created in telecom, we are seeing solution needs around telecom towers. So I think our team is -- as I said, we will first and foremost focus on BFSI. That's a sector where we have the network and reach and customer trust, and we don't want to lose that opportunity.

I think we are executing well on that area. But we are also, like in the retail side in cash, we invested in building up a pretty strong sales team. We are right now building a strong sales team in remote monitoring to be able to cater to these type of solutions. These solution sets are deployed and they run and maintain over a long period of time. But they are also very complex solutions, right?

Some of this capability, we already have built. Some of this capability, we'll partner, and some of that we'll have to build in the coming years.

[Unknown Analyst]

And sir, 1 last question. I just wanted to know that if you look at in the P&L side, on a purchase, dates could have been increased so much. So can you put some light on it?

[Rajiv Kaul, executive]

Yes, Pankaj will answer that.

[Pankaj Khandelwal, executive]

Yes. So during this period, our sales for the ATM has increased from INR 57 crores in FY '23 to INR 140 crore in FY '24. Earlier this year, earlier, it was around 6% of the revenue. And this year, around 11% of revenue is coming from the ATM sale.

So that is the reason that the cost of the goods or if you net it the inventory changes has improved.

[Operator]

Next question is from the line of Neil from Vale Investment Advisors.

[Unknown Analyst]

So my first question is around margins. So if you just look at the margins for both the segments, Cash Management and Managed Services. Over the past 3, 4 quarters, consistently, the margins have been coming down. So for Managed Services, of course, this is a product mix increasing for us is affecting us. But what will be in India other than that for the impact on margins? And going forward, how should we be looking at the margin level in coming quarters?

[Rajiv Kaul, executive]

So I think 2 things we'll point to. One is, I look at margins on a full year basis, not just every quarter. I mean there are different changes which happen. However, I think when you think of specifically the cash logistics business and the second half of the year, that's the part of the year where we had to ramp up and we were able to ramp up our investments for some of the new businesses in specialized logistics and collection services. So the cost of that is currently housed within the cash view.

So if you -- in fact -- I mean, the good point you made, I don't know if I mentioned this in my overall remark when I presented. If you would, actually, our PAT margin this year of 23% is after taking almost an INR 8 crores to INR 10 crore incremental expense and operating costs for incubating new businesses. And all of that is housed currently in our cash view.

[Unknown Analyst]

Okay. Got it. So now going forward in the next '25 or '26, we can expect this margin to be stable at this level? .

[Rajiv Kaul, executive]

Are we looking -- I think this is something we have said this during IPO, every time we interact with customers in our team, we retained the rights to invest some of our earnings back into incubating new businesses. We are not a team which is sort of comfortable going and buying into new sectors unless we understand the factor very well.

So some of this cost, operating cost increase is a reinvestment into the business for us to look at expanding. I cannot tell you right now how much will this number be, this INR 8 crores, INR 10 crores will be in the coming year. But of course, we look at trying to make sure that we don't have while we are investing in new businesses, they are not doing -- we are not doing to any high loss. I think the loss number should be manageable in the overall P&L we deliver.

[Unknown Analyst]

Okay. Got it. And my second question is around network compliance. So what level have you reached with respect to that? And do we expect any kind of benefit, cost benefit coming in as you go up that percentage?

[Rajiv Kaul, executive]

I think as we have guided to earlier, we're looking to complete our investments in machining and compliance network in FY '24 to a level of about 85%, which we have achieved.

However, through the year, we've focused our intent on the ATM cash business to improve yields and pricing. We now feel confident of maybe inching that up even further closer to a 90% rate.

[Unknown Analyst]

Okay. So now going forward, no major benefit we can expect because mostly, compliance has been [indiscernible]?

[Rajiv Kaul, executive]

We will have the benefit of looking at our data over a 4-year period partly as a team, which has been here for about 10, 15 years. I think we take a lot of internal pride in sort of crafting ways in which we continue to deliver productivity and efficient gains.

Fundamentally, we are a very strong operating leverage oriented business, especially on our logistics and network business. So there is always various initiatives and efforts to keep taking out that little bit of extra efficiency, whether we get it from incremental business or we get it from infusing technology to what we do, or it just comes from managing our operating processes more efficiently.

The part where I think we will continue to upgrade is really on the CapEx swap. In FY '24, we achieved about 20% CapEx swap coverage as going back to some of our earlier updates, we had said that the CapEx swap is today being -- the whole project, RBI regulation is sort of being driven by the Indian Bank Association to ensure that they drive us on a consistent and homogenous basis. 30 cities in India were earmarked for the first phase of expansion. They will -- that project or that phase of that 30 cities will almost complete by end of June, after which we expect an expansion to a further set of 30, 45 cities.

So I think that expertise will continue to play out.

[Operator]

[Operator Instructions] Ladies and gentlemen, we will now take the questions from the chat box. The first question is from the line of Akash Oza from CCIL. What is the payment card business under MS and IT? If you can give a brief on that.

[Rajiv Kaul, executive]

The Payment Card business is one of our older business lines, where we work with leading private sector banks and some public sector banks. And when they are issuing financial costs, a debit card or credit card to a customer, there is a -- it's a managed service like business in which everything from the card sourcing personalization, the data security and encryption is all done in a very high-end securability, which is audited and which is read by Rupe, Visa, MasterCard.

There are 3 or 4 key players in the sector and also NPIs, obviously. So I think there are 3, 4 players in the sector. CMS is 1 of the high-quality players there. And we work with, as I said, with large banks in issuing these cards to their consumers when they have new consumers or when they have to -- when there is replacement.

[Operator]

The next question is from Avinash Pata, Individual Investor. So how are the new business lines shaping up? What is the competitive landscape and potential in these new business lines?

[Rajiv Kaul, executive]

So the -- we -- let's talk about the debt collection business. The debt collection business, I think, needs, as we even have seen from regulatory intervention, I think there is a need for high-quality players who are providing end-to-end services. We have launched these services and piloted them with leading NBFCs. There's a lot of interest in the customer sets to have a company of CMS' repute to be able to provide these solutions to them, whether we can successfully launch this and scale it and make money, time will tell. But we think this is a humongous, large opportunity out there. It's obviously a challenging opportunity. But we will take a strong stab in it in the coming years to see if we can become -- like we became the leader in cash logistics, if we can become the leader in an integrated collection stick, collections call center and collections field integrated company as a choice partner to banks and NBFCs.

The specialized logistics, our focus is currently fairly narrow on the Boolean space. Over time, it can move into other high-value logistics. There are largely, I think it's a very large unorganized sector. But as the sector moves to formalization, right, you look at jewelry stores and all move from unorganized to organized. As you see large jewelry chains increase their footprint of the country. And we think there is an opportunity for a good third player in the sector.

We're already doing this work for the last year, 1.5 years, and we hope to grow this obviously in a very small base right now. But we are again seeing a lot of traction in customers wanting a high-quality player as an alternative there.

[Operator]

We'll move on to the audio questions. [Operator Instructions] The next question is from the line of Franklin, [indiscernible] Wealth Advisory.

[Unknown Analyst]

I just wanted to know what is the ESOP trajectory going forward?

[Rajiv Kaul, executive]

You mean ESOP costs?

[Unknown Analyst]

Yes.

[Pankaj Khandelwal, executive]

So this quarter, the ESOP cost was around INR 10 crores. And just to remind you that the ESOP, whatever we have issued either even issued on the weighted average fair market value or maximum 10% of discount. Around 75% of the ESOP issued during last year was issued on the weighted average price and 25% on a 10% discount.

[Rajiv Kaul, executive]

I think that's just our way of telling any shareholder that ESOP issuance to employees is very closely aligned to our public shareholders.

[Pankaj Khandelwal, executive]

The cost -- last year cost -- this quarter cost was around INR 10 crores. And going forward, as we have guided you earlier also, the cost will be next 2 quarters, the cost would be around INR 10 crores. And after that, it will gradually reduce to INR 6 crores, INR 4 crores and INR 3 crores.

[Unknown Analyst]

Okay. This would be the quarterly run rate, right, what you mentioned?

[Rajiv Kaul, executive]

Yes. This is on the current set of ESOP issue, right? If they not see any point issues, any new ESOPs, which are already approved by shareholders, there will be some impact of that, which is difficult to predict right now.

[Operator]

Next question is from the line of Pradeep Rawat from Yoga Capital.

[Unknown Analyst]

So my first question is regarding our cash logistic business. As you have mentioned in the presentation, our cash logistic business has grown 17% CAGR from FY '21 to FY '24. And the market growth outlook is for 19% CAGR from FY '21 and FY '27. So I just want to know why are we underperforming the market?

[Rajiv Kaul, executive]

Just give us a second while we move to the slide to have a look at it. Okay. So I don't know if you can see the slide. We have the TAM slide out there from FY '21 to FY '27. I think this is -- our FY '21 to '24 number is 17% roughly. The longer-term forecast opportunity here is around that.

We will have to see how the ATM growth numbers pan out. This predicts -- this has predicated basis some ATM market growth, which has lagged right now. If that picks up and outsourcing increases, then this number is -- then it's a fair question. But as of now, I think we track based on our market share in the sector.

Our market share in our -- both our ATM business has gone up. Retail, we have gained market share last year. CIT is the only business where we have been sort of flat.

[Unknown Analyst]

Okay. Understood. And my second question is regarding the operating margin. Our operating margin was used to be 17% and 18% in [indiscernible] times. And now our margins are north of 25%. So what led to this margin expansion? And what levels of margin should we look forward in the coming years? Any ballpark number would be fine or a range.

[Rajiv Kaul, executive]

So we have not given any margin guidance at all ever. We focus only on a revenue growth aspiration. The margins have expanded for multiple reasons. I think in our network and a loud density business as the business points you cover is linked to, obviously, pricing growth. It's linked to mix change, where we talked about yield, where we are focusing more sometimes in a particular year on higher-yield businesses.

And it's been a good, strong, robust margin increase. And lastly, also just using a lot of technology to automate our back end and back office functions. What is the mix of margins to predict for the future? Impossible to know. We don't control the cost. We don't know what happens to fuel price, wage prices, competitive pressures.

I think like I said, we will be focused on market share and revenue growth. If they work well, I think the margin profile remain very strong.

[Operator]

The next question is from the line of Yash Suraj from Exponential Research.

[Unknown Analyst]

My question is around Central Bank digital currency. So earlier this month, RBI -- so basically, there was an article in ET, in which RBI told that they were working towards CBDC. And CBDC is going to be -- there will be a component of anonymity that will be noninterest-bearing. And they're also working on the offline mode to leverage the UBI infrastructure. So Rajiv, you had previously alluded that the CBDC is more relevant for the corporate, especially for the cross-border transactions. But now that they are working on this offline mode and they said that it would be noninterest-bearing. Is there a change in that view? Or is that the same? Just wanted to get a sense for that.

[Rajiv Kaul, executive]

No, it's impossible for anybody to predict what regulatory action can sort of drive in the coming years. I do still believe that PDC functionality or is very similar to what other modes of UPI offer. However, what the Central Bank has talked about in terms of making CBDC not tractable and all of that. I think that would present a threat to other digital form of payments more than cash. I mean that's why I believe I could be right wrong, I don't know. There's also something which we haven't really seen a pick up anywhere in the world yet. Therefore, very difficult to sort of gauge how this will pan out. To sort of look at experiments in other parts of the world and saying, this was in the work. And we'll just see how this pans out.

[Operator]

Ladies and gentlemen, we will take that as the last question. I'll now hand the conference over to Mr. Rajiv Kaul for closing comments.

[Rajiv Kaul, executive]

Well, thank you so much for attending our call. Thank you for the insightful questions. I hope you like the format of this call, where we were able to sort of give you a deeper dive. As we promised, end of the year is when we will be able to share more data points, operating metrics, financial metrics with you. And thank you for your support. As analysts and shareholders of CMS, I hope you're happy with our performance, and we hope for your best wishes for the year.

[Operator]

On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.