AGS Transact Technologies Ltd’s three-day IPO has gone live today! The IPO closes on January 21, 2022. In this article, learn more about the company’s business model and its IPO.
The Business Model
According to the company’s Red Herring Prospectus (RHP), AGS Transact offers the following services:
- Payment Solutions – Includes ATM and Customer Relationship Management (CRM) outsourcing and managed services, cash management services, transaction switching services, POS machine services, and agency banking. As of August 31, 2021, the company offers 14,099 ATMs and CRMs under its outsourcing business and 19,161 ATMs and CRMs in India. It also provides outsourcing solutions for 1,273 ATMs and kiosks in Sri Lanka.
- Banking Automation Solutions – It sells ATMs and CRMs, currency technology products, self-service terminals, and related services and upgrades. As of August 31, 2021, it had had approximately 50 banking customers, including ICICI Bank Ltd, HDFC Bank Ltd, and Axis Bank Ltd.
- Other Automation Solutions – Includes sale of machines and related services to customers in the retail, petroleum, and colour segments like system automation products, system integration, remote management, and other service offerings.
The company also has certain businesses overseas in Sri Lanka, Singapore, Cambodia, the Philippines, and Indonesia. The overseas business contributes to nearly ~4% of the company’s total revenue.
As of August 31, 2021, AGS Transact had installed a network of 221,066 merchant POS, 17,924 petroleum outlets. It had installed nearly 72,000 ATMs and CRMs offering cash management services, 46,800 cash billing terminals, and 88,521 colour dispensing machines. The business serves customers in 2200 cities and towns through 446,000 machines or customer touchpoints.
To sum it up, AGS manufactures ATMs and other machines that exist in the retail banking business. AGS also manages and replenishes the cash in it and maintains these machines. It also provides automation solutions for payments at retail outlets, petrol stations, etc.
Financial Performance
AGS Transact Tech’s cash flows and financial condition has been affected by the Covid-19 pandemic. The company’s revenue fell 2% YoY to Rs 1,797.15 crore for the financial year 2020-21 (FY21). Its net profit fell 33.7% YoY to Rs 54.79 crore during the same period. Its Return on Net Worth (RoNW) stood at 10.29% in FY21, which is quite low compared to its peers CMS Info Systems Ltd, Radiant Cash Management Services Ltd. In the first five months ended August 2021, AGS Transact stood at a loss of Rs 18.10 crore.
The company’s outstanding gross debt stood at Rs 1,654.4 crore as of August 31, 2021.
IPO Details in a Nutshell
How the company will utilise its proceeds is tricky. Mr. Ravi B. Goyal, the founder, chairman, and promoter, will offload his shares for nearly Rs 650 crore. He will use this money to buy Compulsory Convertible Preference Shares (CCPS) of Vineha Enterprises Private Ltd (VEPL) from his own company AGS Transact. VEPL owns a 44% stake in AGS Transact and is also a promoter. In the end, AGS Transact gets Rs 650 crore which it will use to redeem/buy back its Non-Convertible Debentures (NCDs) or bonds that it had issued. Essentially, AGS Transact gets the money that it will use to offset the debt.
The Way Ahead
AGS Transact Technologies has had a lukewarm reaction before its debut. In the grey market, the company is trading at Rs 15-17 more than its issue price. The company has stable financials and a sustainable outlook in terms of business. Its business is impacted by the flow of cash. With digital payments blocking the way for cash, the company’s business could get impacted. As of August 31, 2021, the company had trade payables of Rs 392 crore and pending statutory dues worth Rs 155 crore. The company receives most of its business from a small set of customers. It earns ~64% of its revenue from the top ten customers. Moreover, any changes in the banking sector could affect its business.
The way AGS Transact Technologies is raising funds through the IPO is something that is seldom seen in the market. It does indicate that the management means business and knows its way around through trick and trade. It is advised that investors research thoroughly before investing in any IPO.
What are your views on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.
