Radiant Cash Management Services – Asset Light Play On Cash Logistics

To understand the prospects of Indian cash management companies, it might be useful to look at how similar companies have performed in other markets. One parallel example that may be useful is that of an Australian cash logistics company, Armaguard, which is currently fighting to stave off bankruptcy and is negotiating a rescue plan with its potential investors.

The reasons why Armaguard got into trouble in the first place bear some similarities with Indian CMS companies like Radiant. Despite being in an oligopolistic market, a consolidated customer base consisting of banks and large retailers led to price wars between the two largest players in the market, Armaguard and Prosegur. Radiant too has indicated in its concalls that it has been facing pricing pressure from its customers while renewing contracts.In 2022, Armaguard and Prosegur merged but that did not help improve the prospects of the combined entity much due to a faulty business model where the pricing was based on volume of cash handled, which has been declining, while the cost structure is fixed leading to deteriorating unit economics. Radiant too has indicated an increase in the share of volume based revenue model from a fixed price one earlier.

There seems to be a misconception that the cash in circulation (CIC) will not decline as a percentage of GDP in India going forward. While it is true that CIC to GDP ratio has actually gone up since demonetisation, the reasons for this paradox need to be understood better. This working paper from the RBI outlines these.

Reserve Bank of India – Database.

The paper suggests that the recent anomalous growth in CIC-to-GDP ratio was primarily on account of COVID-19 pandemic where household preferred hoarding cash as a hedge against uncertainty arising out of the pandemic. As the effects of the pandemic recede, CIC-to-GDP ratio has started falling again and if this trend is likely to continue in the future then it may not augur well for CMS companies like Radiant who will be forced to fight for increasing their market share of a declining total addressable market (TAM).