AGS Transact Technologies - IPO - Tech-Based Solution Provider at Discount - Reliance Securities

About the Company

AGS Transact Technologies (AGS) is one of India's leading payment solution providers and the largest deployer of POS (Point of Sale) terminals at petroleum outlets in the country. AGS is the second-largest company in ATM managed services under the outsourcing model, cash management and number of ATMs replenished. As of Aug'21, it deployed 221,066 payment terminals and rolled out Integrated Payment Solutions (IPS) at more than 16,000 petroleum outlets with 28,986 terminals in India. The company primarily operates in 3 business segments -- I) Payment Solution Services: includes ATM and CRM outsourcing, cash management services, POS machine services, agency banking etc. It has also deployed POS terminals at leading petroleum outlets such as HPCL, IOC, while Dr. Lal Pathlabs, Patanjali Ayurved, RJ Corp Ltd, VRIPL Retail Pvt Ltd, Organic India are the corporate clients. II) Banking Automation Solutions: includes sale of ATM and CRM, self-service terminals, currency technology products etc. The company also offers other automation services for customers in petroleum, retail and color segments such as system automation products, system integration and other service offerings. III) Other Automation Solutions: sale of machines and related services to customers in the retail, petroleum and color segments. AGS supplies automation products and provides implementation services, system integration, remote management and support and help desk services. Customers for retail sector offerings include More Retail Pvt Ltd, while customers for petroleum sector offerings include HPCL, IOCL and BPCL. Color operations primarily comprise the supply of automatic paint dispensers and related services, and serving customers including Asian Paints, Kansai Nerolac and Berger Paints India.

Financials in Brief

AGS reported a PAT of Rs548mn in FY21, down from Rs830mn in FY20, impacted by the slowdown in economic activities and resulting in lower sales and profitability. For 5MFY22, the company incurred a loss of Rs182mn. As of Aug'21, AGS has installed, maintained or managed a network of ~72,000 ATMs and CRMs, provided cash management services to 46,214 ATMs (through subsidiary, SVIL), installed 221,066 merchant POS and ~46,800 cash billing terminals, automated ~17,924 petroleum outlets and installed ~88,521 color dispensing machines. For the five months ended Aug'21, SVIL's daily average cash transaction amount stood at ~Rs20bn. AGS reported an average EPS of Rs5.5 and an average RoE of ~14% over the last three fiscals. The company has paid a dividend of 10% for FY19 and FY21, while it skipped it for FY20.

Our View: SUBSCRIBE

On FY21 financials, the IPO is valued at 6x EV/EBITDA and 1.5x EV/sales, compared to CMS at CMP trades at 14.5x EV/EBITDA and 3.3x EV/sales. AGS continues to focus on developing customized in-house solutions, in-house infrastructure and technological capabilities, and has a long-standing relationship with global technology providers, Diebold Nixdorf, ACI. With diversified product portfolio, large customer base and track record, AGS would capitalize on cross-selling opportunities and expects to develop integrated payment solutions and technology. In the petroleum sector, AGS integrated POS terminals into fuel automation solutions, giving merchants access to their sales volumes and payment transaction data. Further, it leverages cash management capabilities to offer cash pick-up services for retail customers. It also monetizes POS network by offering VAS to both consumers and merchants, which augured well for AGS. The company is also expanding into Asia, namely Sri Lanka, Singapore, Cambodia, Philippines and Indonesia through a JV. In view of the market leadership in ATM managed services and cash management with healthy margins and high return ratios, niche product offerings, strong industry growth and valuation at a discount to peers, we recommend SUBSCRIBE to the issue with a positive view.

Link to the report

Source : Equity Bulls

Keywords

AGSTransactTechnologies IPOReview RelianceSecurities