AIoT And Managed Services Will Drive Future Opportunities

Key Takeaways

• CMS Info Systems aims to boost future revenue and margins through strategic service expansion, technology integration, and large-scale operational efficiencies.
  
• Expanding into new markets and leveraging competitor disruptions positions CMS Info Systems to capture additional market share and diversify its revenue streams.
  
• Operational disruptions and execution delays are impacting CMS Info Systems' short-term revenue and margins despite new ventures potentially diversifying future revenue streams.

Catalysts

Operates as a cash management company in India.

• CMS Info Systems aims to significantly increase its services revenue growth, particularly in its Managed Services and Technology business, by executing its large order book. This is expected to boost revenue in FY '26 and beyond.
  
• The company's strategic investment in integrated offerings and technology is likely to drive margin expansion by enhancing service quality and operational efficiency, positively impacting net margins.
  
• The disruption and instability amidst a key competitor provide CMS Info Systems with an opportunity to capture market share, potentially boosting revenue as well as enhancing the competitive position in the midterm.
  
• Continued focus on expanding the cash management total addressable market (TAM) through the outsourcing of in-house ATMs by large PSU banks could drive revenue growth and improve operating margins due to greater scale.
  
• Strategic expansion into non-BFSI sectors such as retail for AIoT remote monitoring solutions creates additional revenue streams and diversification, potentially leading to stronger earnings growth.

CMS Info Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CMS Info Systems's revenue will grow by 13.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.1% today to 16.1% in 3 years time.
• Analysts expect earnings to reach ₹5.8 billion (and earnings per share of ₹34.08) by about February 2028, up from ₹3.7 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, up from 20.3x today. This future PE is greater than the current PE for the IN Commercial Services industry at 21.6x.
• Analysts expect the number of shares outstanding to grow by 0.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.61%, as per the Simply Wall St company report.

CMS Info Systems Future Earnings Per Share Growth

Risks

• The disruption in the ATM base due to instability in operations at a key industry player might slow down the transition to CMS, potentially affecting short-term revenue growth despite the eventual opportunity. This impacts revenue and market dynamics in the short term.
  
• Execution delays in the ₹1,900 crore PSU order book have led to lower revenues, with only 30% completion by Q3 FY '25, affecting potential revenue by approximately ₹150 crores this fiscal year. This delay impacts revenue recognition and growth in FY '25.
  
• The Managed Services and Technology business saw a 10% decline in revenue due to lower banking automation revenue, which could pressure overall segment margins and profitability if recovery does not occur soon. This affects segment-specific revenue and margin profiles.
  
• Despite new business ventures like AIoT and non-BFSI remote monitoring solutions, these areas may not yet generate substantial revenue or profitability compared to the core business segments. This affects diversification of revenue streams and margin improvement.
  
• The cash management TAM could face regulatory impacts due to evolving cassette swap guidelines and potential delays in their implementation, affecting cost structures and efficiency in service delivery. This impacts risk management costs and operational expenses.

Valuation

• The analysts have a consensus price target of ₹584.5 for CMS Info Systems based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹35.6 billion, earnings will come to ₹5.8 billion, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹451.4, the analyst price target of ₹584.5 is 22.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.