Listing down some quick pointers
- Anecdotal thinking: Cash vs UPI. Cash may eventually decline, but it still is salient in T2/3/4 and low-mid income strata. Cash in circulation is showing no signs of degrowth. Even after withdrawal of high denom. Rs. 2000 notes, CIC has grown by 4%! The volume of ATM withdrawals is growing too, albeit at a slower pace than pre-covid. CMS’ business model is anyway not dependent on volumes of cash handled. If cash in the system declines, the velocity might increase and counter-intuitively offer more business to CMS. Their pricing model is per-trip/visit based.
- My hypothesis, with limited evidence: the Market sees this as a pure cash logistics company. IMO, its a B2B Business services firm with declining dependence on cash mgmt (managed services now form 40%). Moreover, formalization of retail serves a long runway for growth in cash mgmt business. Some evidence is seen in their healthy return metrics. A pure logistics company may not enjoy such healthy return ratios without a strong tailwind.
- Headwinds: ATM additions may not pan out as projected/anticipated by the market in 2020-21. Some concerns related to the banking sector growth.
Do read their investor day presentation and concall. I’m sure you’ll find more reasons, e.g. binary thinking, consolidating industry, UPI growth post covid, poor financials of most peers etc.
Disclaimer: SEBI-registered. This is not an investment advice. Holding significant quantities in family + client accounts.
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