Disclaimer: I have vested interest in CMS Info. And, tracking Radiant Cash. Both having different models.
Unable to read Australian Financial Review article due to paywall.
Some differentiating factors in Indian industry from Australian industry:
- Formalisation of economy is still ongoing process in India, benefitting all - retail players, financial institutions and CMS providers. Reduced frictions in capital flow.
- As of now, Indian market is very high density market (my thinking: will continue to remain so due to large population and smaller land mass), making it possible for superior efficiency in logistics (fuel cost per ‘points’ served, and, manpower costs. Operating leverages in play)
- CMS Info management as well as Radiant Cash management both are aware and focussed on building operational efficiencies and lower cost per ‘unit’ served. Either through increasing density, route optimisation or risk management. However, I am not expert to check this theory (opinion based on financial numbers).
- My perception is they are aware of growth in alternative payment (UPI and cards) as they should be (Both companies are focussed on developing alternate lines of business as well - derisking company from purely cash management)
But, they are optimistic about growth of cash usage as well (which supports their business). CIC to GDP growth is just supporting point for their narrative, however, growth in cash usage on absolute basis (especially in formal channels) continues to be true. - Their capital structure is strong, i.e, no leverage which does not put additional pressure on business for positive cashflow generation. I do not know capital structure of Armaguard or Prosegur.
However, I do think there will be pressures in the long run as services like Cash on Delivery etc lose their value. As they have started to already, delivery guys and cab drivers are readily accepting UPI which was not the case before. Hospitals also have constraints that you cannot pay more than 2 lacs in cash. There should be discomforting transition period for companies in future (no prediction about timeline).
Investment thesis in nutshell:
- Cash (currency) will always be an option, purely on the basis of risk management in case of emergencies. Like gold still is.
- Diversification of business (CMS Info initiatives have already started yielding positive results).
- Cash management services should continue to grow, at least in near to medium term. Margins and Free cash flows are also increasing due to this.
- Margin of safety in valuations during investing, attempting to put odds in my favour. I do not know whether I am right or wrong wrt investment, time will tell.
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