CMS Info Systems Ltd

Key Pointers from CMS Infosystems Q2 FY25 Earnings Call

Financial Performance:

• Strong Overall Growth: Despite a slower-than-expected H1 FY25, the company achieved 16% revenue growth, reaching ₹1225 crore by the half-year mark. This signifies consistent momentum even with external challenges. Q2 FY25 consolidated revenue grew by 15% to ₹624 crore.
• Segmental Performance:
  • Cash Logistics: Grew 8% YoY in Q2, reaching ₹390 crore, with an EBIT margin of 25%. This segment consistently contributes a significant portion of overall revenue and is expected to grow at 10-13% in the mid-term.
  • Managed Services and Technology Solutions: Showcased strong growth of 28% YoY in Q2, reaching ₹264 crore. This was driven by new order wins, though margins were affected by product mix and delayed project executions.
• Profitability: While revenue growth was robust, profit growth was comparatively slower. Factors impacting profitability include:
  • Delayed Order Execution: This led to incurring costs without corresponding revenue recognition, especially in the Managed Services segment.
  • Investment in Growth Initiatives: The company invested in capacity expansion, new business incubations, and talent acquisition, impacting short-term profitability.
  • Product Mix: In Managed Services, the higher contribution of product revenue, which typically has lower margins, impacted the segment’s profitability.
• Working Capital: An increase in trade receivables, particularly ₹175 crore related to delayed payments for a key project, impacted working capital in H1 FY25.

Challenges and Opportunities:

• External Headwinds: H1 FY25 was impacted by external challenges like extended monsoons, an election cycle, and muted consumption, impacting both revenue and realizations.
• Order Execution Delays: Primarily due to technical integration issues with PSU banks, impacted revenue recognition and capital expenditure plans.
• Competitive Intensity: Though moderating, competitive pressures persist, particularly in the BLA sector, impacting pricing and margins.

Growth Drivers and Outlook:

• Order Book Execution: The company is intensely focused on executing its robust order book, expecting a strong Q4 FY25, laying a solid foundation for FY26.
• New Business Initiatives: Investments in new areas like IoT RMS and the bullion logistics business are showing promising results, offering potential for future growth and diversification.
• M&A Strategy: The company has a strong pipeline of potential M&A deals, focusing on expanding its offerings, scaling existing businesses, and consolidating core sectors.
• Favorable Regulatory Developments: Potential ATM interchange rate increases, PSU bank outsourcing trends, and RBI’s plans for currency chest infrastructure revamp are viewed as potential mid-term growth drivers.
• H2 FY25 Outlook: The management expressed optimism about the second half of the year, citing encouraging early festive season data, government focus on capital expenditure, and easing bank liquidity. They aim for an H2 performance better than H1 and a strong base for FY26.

Key Management Commentary:

• The company remains committed to its strategic priorities of driving revenue growth, market share gain, and margin growth.
• They are focused on investments for capacity addition, growth incubations, and M&A.
• Emphasis on improving customer satisfaction and strengthening the customer value proposition.
• The cash logistics business is expected to maintain a steady growth trajectory, with potential for 10% growth over the next five years.
• Despite challenges, the management remains confident in achieving the midpoint of their FY25 revenue guidance range (₹2500-2700 crore).