AGS Transact Technologies, one of the largest omni-channel payment solutions providers in India, launched its initial public offering today. AGS Transact Technologies IPO will remain open until January 21, 2022. The company targets to raise Rs 680 crore (lower than the earlier target of Rs 800 crore) from this public offer, with a price band of Rs 166-175 a share.
The public issue is entirely an offer for sale (OFS) by promoter Ravi B. Goyal. Through OFS, promoters can trim their holdings transparently. Through this IPO, Goyal will reduce stake by 32 per cent by selling 3.8 crore equity shares worth Rs 677 crore.
The company will utilise the IPO proceeds to reduce the debt. According to the promoters, it has Rs 1,100 crore long-term debt. Post the IPO, this figure will come down to Rs 550 crore.
AGS Transact Technologies has raised Rs 204 crore from anchor investors by allotting 1,16,57,141 equity shares at Rs 175 (upper end of price band) per equity shares. Anchor investors included three domestic mutual funds through a total of seven schemes such as HDFC Balanced Advantage Fund, Nippon Life India Small Cap Fund and others.
How AGS Compares With Close Peer CMS Info Systems
AGS is one of the largest integrated omni-channel payment solutions providers in India in terms of providing digital and cash-based solutions to banks and corporate clients, as of March 31, 2021, according to Ken Payments Report. AGS key offerings include ATM and CRM (cash recycler machines) outsourcing, cash management, digital payment solutions and automation solutions. AGS provides cash management services through its wholly-owned subsidiary Secure value India Limited to 46,000-plus ATMs pan India.
AGS is the only company in India to provide the full range of services in the ATM managed services market. AGS manufactures ATMs and ATM equipment and also provides ATM managed services and cash management but close peer CMS doesn't manufacture these.
AGS is more into digital payment solutions and digital payments vis-a-vis CMS and AGS has substantial revenues coming from these business streams. AGS should be perceived as a new-age new economy digital player. It is also the leading player in digital payment solutions for oil marketing companies. Again, CMS is not in this area. Overall, 22.3 per cent of fuel retail outlets in India use POS (point of sale) services offered by AGS.
Should You Subscribe?
Experts believe that the AGS IPO is fairly priced compared to its peers. Anand Dama, analayst with Emkay Securities, says, “AGS provides an opportunity to invest in a cash-cum-digital play from a long-term perspective. At the higher price band of Rs 175, the stock is valued at 3.7 times FY21/3.8 times annualized FY22 expected business value (BV), similar to its peers like CMS Info Systems (recently listed with decent up move) trading at 4.4 times FY21/3.7 times annualized FY22E BV and SIS with multiple business lines trading at 3.7 times FY21 BV.
However, he also points out the risk associated with the loss of ATM business mandate with a large bank, Covid-led business disruption and delay in the scale-up of digital payment business. “ATM business revenue has been moderating due to slower growth in ATMs and lower cash withdrawals due to the Covid-related lockdowns. However, since cash transactions continue to rise and PSBs too are looking to expand their ATM base after a long period of consolidation, ATM business growth will resume with the deployment of more ATMs/CRMs for existing/new clients and new outsourcing/management contracts,” says Dama.
Reliance Securities in its report writes, “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.”
Choice Broking, which has also given subscribe rating to the IPO, writes, “There are no comparable peers, which have similar business operations to that of AGS. CMS Info Systems Ltd and SIS Ltd are close peers and thus are referenced for benchmarking the valuation. At the higher price band of Rs 175, AGS is demanding a P/E (price-to-earnings) multiple of 38.5 times (to its FY21 earning of Rs 4.6), which is at premium to peer average of 21.8 times.”
The report also highlights that AGS’s business operations were severely impacted from the Covid-19 pandemic restriction, thus its earnings was depressed in FY21. With ease in pandemic restriction, anticipating a ramp-up in ATM deployments by banks and further evolution in the digital payment space, we feel the company is well placed to benefit from its diversified product and services portfolio, varied customer base and multiple revenue streams.
On day one, the IPO got subscribed 76 per cent and retail category oversubscribed 1.14 times till 3 pm.