AGS Transact Technologies coming with an IPO to raise upto Rs 717 crore

AGS Transact Technologies

• AGS Transact Technologies is coming out with a 100% book building; initial public offering (IPO) of 4,09,63,851 shares of Rs 10 each in a price band Rs 166-175 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on January 19, 2022 and will close on January 21, 2022.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 16.60 times of its face value on the lower side and 17.50 times on the higher side.
• Book running lead manager to the issue are ICICI Securities, HDFC Bank and JM Financial.
• Compliance Officer for the issue is Sneha Kadam.

Profile of the company

The company was one of the largest integrated omni-channel payment solutions provider in India in terms of providing digital and cash-based solutions to banks and corporate clients, as of March 31, 2021. It provides customised products and services comprising ATM and CRM outsourcing, cash management and digital payment solutions including merchant solutions, transaction processing services and mobile wallets. As of March 31, 2021, the company was the second largest company in India in terms of (i) revenue from ATM managed services under the outsourcing model, and (ii) revenue from cash management and number of ATMs replenished. It also pioneered IPS with OMCs.

The company started providing banking automation solutions in India in 2004. It deployed products from international solution providers such as Diebold Nixdorf and established its own country-wide service infrastructure and automation solutions expertise to provide related services. Beginning in 2009, it leveraged its banking automation solutions expertise and service reach to offer ATM outsourcing and managed services by, among other things, entering into two cooperation agreements with Diebold Nixdorf for banking and retail products. As part of its strategy to strengthen its presence in the cash value chain, offer an integrated payments platform and improve its operational efficiencies, it commenced offering transaction switching services in 2011 and cash management services in 2012. In 2014, it expanded its offerings into digital payment solutions, enhancing its integrated digital platform and Software-as-a-Service (SaaS) capabilities. In 2016, it also entered into an alliance with ACI Worldwide (ACI), a leading international payments solution provider, which has further strengthened its value proposition to customers.

The company operate its business in Payment Solutions; Banking Automation Solutions; and other Automation Solutions (for customers in the retail, petroleum and colour sectors) segments. The company’s Payment Solutions segment comprises ATM and CRM outsourcing and managed services, cash management services, iCDs, digital payment services which include toll and transit solutions, Fastlane, transaction switching services, services through POS machines and agency banking. Its Banking Automation Solutions business segment, which commenced in 2004, comprises sale of ATMs and CRMs, currency technology products and self-service terminals and related services and upgrades. Its Other Automation Solutions business segment encompasses the sale of machines and related services to customers in the retail, petroleum and colour segments.

Proceed is being used for:

• Carrying out the offer for sale by the selling shareholders.
• Realizing the benefits of listing of the equity shares on the stock Exchanges, enhancement of company’s brand name.
• Creation of a public market for the equity shares in India.

Industry Overview

GDP growth, surge in private consumption and government initiatives towards promoting the Indian economy through “Made in India” strategies have resulted in strong growth in the payments sector. The number of transactions grew from 31,383.9 million in financial year 2019 to 46,405.8 million in the financial year 2021, although the value of transactions declined from Rs 1,739,214.4 billion to Rs 1,471,579.0 billion in financial year 2021 due to the COVID-19 pandemic. The number of ATMs in India has been increasing, due to the ease in setting up ATMs under the managed services and brown-label management models. The number of ATMs being managed by banks has been continually decreasing due to the advantages offered by other ATM management models, as managed service providers can take on the burden of managing an ATM, including cash replenishment, service and repair, site management and other services, and ensuring higher uptime for the ATMs. Out of the total number of ATMs in India, ATMs managed by banks decreased from 20.6% in financial year 2012 to 9.2% as of March 31, 2021, showcasing immense potential for MSPs in the ATM industry.

The Indian digital payment space has seen extraordinary growth in the last few years, with the volume of transactions increasing at a CAGR of 36%. New and innovative payment products such as UPI, NETC, FASTag and BBPS have contributed to the growth of the digital payment industry. With the emergence of new payment technologies and use cases across sectors, this growth momentum is expected to continue. Transactions saw a minor drop in the early months of the financial year 2021 and have now begun to go back to pre COVID-19 levels. Businesses are now looking to integrate both online and offline channels to provide an omni-channel experience to their customers. UPI transaction volumes have already gone back to pre-lockdown levels. Similar trends can be observed in NETC transactions. Digital transactions have recovered from their lows in the months of the lockdown and gained traction over the rest of the year with a growing preference for contactless transactions and tailored financial offerings by fintech players to adapt to the needs of end-users. 

Pros and strengths

Omni-Channel Integrated Payment and Cash Solutions Provider: The company was one of the largest integrated omni-channel payment solutions provider in India in terms of providing digital and cash-based solutions to banks and corporate clients, as of March 31, 2021. It serve diverse industries such as banking, retail, petroleum, toll and transit, cash management and fintech in India and other select countries in Asia. Its services help increase the speed and accuracy of cash as well as digital payment transactions. In addition, the size and wide reach of its operational network enables it to realize economies of scale. As part of its digital payments solutions, it offer a payments platform, customized solutions and related managed services to cater for end-users, merchants, banks, bank agents as well as other ecosystem partners. Its payment platform accepts payments through a broad spectrum of options including magnetic stripe, chip and pin, contactless, Bharat QR, Unified Payment Interface (UPI) and Aadhaar Pay, which makes it a partner of choice for merchants.

Customer driven portfolio: The company’s experience and expertise, coupled with its knowledge of the industries in which its customers operate, enable it to provide them with customized solutions. It regularly interact with customers to understand their requirements and work closely to develop future roadmaps. The success of this approach is evident in the comprehensive suite of merchant solutions which it has launched over the years such as mobile wallets, financial inclusion applications and agency banking software. Its ability to innovate and offer customized payment solutions to address the requirements of its customers allows it to deepen its relationships with them and enables it to target a greater share of their payment-services related requirements.

Diversified product portfolio: The company derives revenues from a variety of products and services catering to customers across diverse industries such as banking, retail, petroleum and colour. In each of these industries, it offers a combination of automation solutions along with payment and maintenance services. It has also diversified into VAS, which include customer-facing services such as loyalty programmes, invoicing solutions and merchant credit. Further, it provides its Digiview surveillance solutions to various customers. It has also entered into a strategic agreement with RBL Bank in relation to a proposal to provide an integrated prepaid card solution based on the National Common Mobility Card (NCMC) at Bangalore Metro Rail Corporation stations, comprising the provision, acquisition and issuance of NCMC cards. By having a diversified product portfolio and customer base, it is able to capitalize on cross-selling opportunities, as its experience and knowledge allows it to develop integrated payment solutions and technology.

Long-standing relationships with technology providers and customer: The company has long-standing relationships with leading global technology providers, such as Diebold Nixdorf and ACI. It has entered into a cooperation agreement with Diebold Nixdorf, under which it assemble ATMs in India. Its long-standing relationship with Diebold Nixdorf has led to effective knowledge sharing and the adoption of global best practices, thereby enabling it to improve and develop its in-house service capabilities. Together with ACI, it has launched a suite of solutions covering processing, and fraud monitoring and reconciliation. Its strong relationship with technology providers has enhanced its market position and enabled it to be the leaders in the payment solutions industry.

Risks and concerns

Dependent on maintenance and growth of ATM network in India: The company’s business and results of operations are significantly dependent on the maintenance and growth of the ATM network in India and on the use of cash as a mode of payment. While some of its agreements with its banking customers provide for payment on a lump sum basis, it derives its revenues from its other agreements on the basis of the number of transactions at the ATMs that it manage and operate. Consequently, the proliferation of payment options other than cash, including credit cards, debit cards, stored-value cards, mobile payments and on-line purchase activity, could result in a reduced need for cash in the marketplace and a decline in the need for ATMs in the country. The demonetization of the currency in November 2016 also led to a shortage of currency circulation in the short term and adversely affected the ATM managed service market. In addition, the COVID-19 pandemic has reduced the number of transactions at its ATMs under its outsourcing and managed services model, as a result of significantly reduced movement and reluctance to use cash in transactions and therefore withdraw cash from ATMs in general.

Highly regulated by the RBI and other government agencies: The company’s business of supply, installation and maintenance of ATMs is highly dependent on the regulatory policies framed by the RBI from time to time. The RBI, pursuant to a circular dated June 12, 2009, permitted banks to open off-site ATMs without RBI approval subject to certain conditions. Any restrictive change in this policy could adversely affect the industry in which it operate and its operations. Under certain of its contracts, it is responsible for the ATM site identification and deployment, installation, ownership and management services for the ATM on behalf of the customer banks. In the event that the RBI either restricts the banks from utilising the assistance of third parties for the installation and maintenance of ATMs, or restricts the number of ATMs which can be set up by the banks, its business, results of operations, cash flows and financial condition could be adversely affected.

Depend on third parties for certain products and services: The company depends on third parties for a number of products and services, including technology licensors, payment network providers, transaction processors, cash management agencies, and security and housekeeping personnel providers. These third parties enable it to provide card authorization, data capture, cash settlement, cash management and delivery, and maintenance services to its ATMs and its products and services. The company will continue to rely on such third-party providers as it expands its business. These third parties may undergo insolvency, file for bankruptcy, experience disruptions, provide lower quality service or increase the prices of their products or services for a number of reasons that are beyond its control. As a result, it cannot be certain that it will continue to receive satisfactory services or products on acceptable terms or at all. It has experienced delays in making payments to certain thirdparty providers and vendors.

Heavily dependent on IT system: The company is heavily dependent on its IT system, which may include third-party infrastructure. To successfully operate its business, it must be able to protect its IT system from interruption, including from events that may be beyond its control. Events that could cause system interruptions include, but are not limited to, fire, natural disasters, unauthorized entry, power loss, telecommunications failure, computer viruses, malicious codes, terrorist acts and war. Significant problems with its IT system, such as telephone or IT system failure, disconnection of VSAT antennae or cyber security breaches, could halt or delay its ability to service its customers, hinder its ability to conduct and expand its business and require significant remediation costs. Any of these events could have an adverse effect on its reputation, business, results of operations, cash flows and financial condition. Its ability to provide reliable service largely depends on the efficient and uninterrupted operations of its transaction processing platform, third-party transaction processors, telecommunications network systems, and other service providers. Accordingly, any significant interruptions could severely harm its business and reputation and result in a loss of revenues.

Outlook

AGS Transact Technologies was of the largest integrated omni-channel payment solutions providers in India in terms of providing digital and cash-based solutions to banks and corporate clients, as of March 31, 2021. It provides customised products and services comprising ATM and Cash Recycler Machines (CRM) outsourcing, cash management and digital payment solutions including merchant solutions, transaction processing services and mobile wallets. It operates its business in the following segments: Payment Solutions, Banking Automation Solutions; and Other Automation Solutions (for customers in the retail, petroleum and colour sectors). It deployed products from international solution providers such as Diebold Nixdorf and established its own country-wide service infrastructure and automation solutions expertise to provide related services. It derives revenues from a variety of products and services catering to customers across diverse industries such as banking, retail, petroleum and colour. In each of these industries, it offers a combination of automation solutions along with payment and maintenance services. On the concern side, as the company relies on consumers using one or more of its services, its business may be affected by rapidly-changing consumer preferences. Its results of operations depend on its ability to attract customers by anticipating, gauging and responding to such changes in consumer preferences. Besides, its operations involve extending credit for extended periods of time to its customers and consequently, it face the risk of the uncertainty regarding the receipt of these outstanding amounts.

The issue has been offered in a price band of Rs 166-175 per equity share. The aggregate size of the offer is around Rs 680 crore to Rs 717 crore based on lower and upper price band respectively. On the performance front, the company’s total income decreased by 2% to Rs 1797.15 crore for the financial year 2021 from Rs 1833.53 crore for the financial year 2020, primarily due to a decrease in revenue from operations. The company’s profit for the year decreased to Rs 54.79 crore for the financial year 2021 from Rs 83.01 crore for the financial year 2020. To capitalize on this growth, the company intends to leverage its existing presence in the consumer-oriented sectors to service the growing demand for products and services. It intends to grow its digital payments business by attracting more merchants and consumers to join its Ongo ecosystem. It aims to do this by pivoting from ‘payment-as-a-service’ to ‘payment-as-a-convenience. It intends to increase the share of such outsourced or managed ATMs and CRMs in its portfolio since it allows it to focus on increasing revenue by facilitating a greater number of transactions for both deposits and withdrawals on ATMs and CRMs through its systems and processes and by targeting new revenue streams from the variety of services required in the ATM and CRM products life cycle.