Jefferies is bullish on CMS Info Systems and has added the stock among its top-picks in the mid-cap space over healthy top-line growth and rise in annual profits.

CMS Info Systems received an upgrade on its target price from global brokerage Jefferies over strong growth drivers and fundamentals.

Global brokerage Jefferies is bullish on CMS Info Systems and has added the stock among its top-picks in the mid-cap space over healthy top-line growth and rise in annual profits. The brokerage has raised the target price (TP) of the stock by 40 per cent to ₹600 from the previous ₹460 and maintains its ‘buy’ rating. However, Jefferies added that the company’s ramp-up of non-transaction segment will support a potential re-rating on the stock in the near-term.

As diversification plays out, we see potential for re-rating. We raise target price to ₹600 (from ₹460) based on 19x Jun-26 PE and add this among our top-picks in mid-cap space with ‘buy’ rating. Steady growth in cash-trx segment and a better than expected ramp-up of non-cash transaction business can support further rerating towards 22-25x PE as well, so we see good risk-reward,” said Jefferies in its report on Tuesday, May 21.

The brokerage said in its report that CMS Info Systems recorded a net profit of ₹914 million in the January-March quarter of fiscal 2023-24 (Q4FY24), registering a growth of 14 per cent year-on-year (YoY) and 23 per cent excluding ESOP. The growth in profit was in line with the estimates by the brokerage.

Jefferies added that it is encouraging to see high growth and and pipeline in non-cash trx segment (AIOT, managed services, collections etc.) that will aid growth, diversity. Valuation at 16x 1 year fwd PE are attractive and flattish over a year. A few risks that Jefferies identified were rapid digitisation of retail transactions and any adverse change in bank-partnership terms.

Let’s look at the top three growth drivers by Jefferies for CMS Info Systems:

Healthy top-line and core profit growth

In the March quarter, CMS Info Systems reported a 25 per cent YoY growth in revenues led by 55 per cent growth in managed services and 62 per cent in cards that compensated for 11 per cent growth in cash transaction revenues. 

Network of cash-mgt points has risen by 10 per cent YoY but as compliance level has reached 85-90 per cent of ATM, revenue growth has moderated. With this, share of non-cash transaction segments in revenues rose to 41 per cent and 31 per cent in margin. 

‘’EBITDA margins (adjusted for ESOPs) were down 200 basis points YoY at 27 per cent. We are also encouraged to see near-doubling of order book. This aided profit growth of 14 per cent YoY and adjusted for ESOP cost it was up 23 per cent YoY,” said Jefferies in its report.

Ramp-up of non-cash transaction business to lift growth, aid diversification

‘’We are encouraged to see ramp-up in non-cash transaction segments like managed services and improvement in segment margins. With ramp-up of AIOT segment, cash collection (currently in pilot stage), specialised logistics, currency chest mgmt. and card segment, we see 17 per cent CAGR in overall revenues,” said the brokerage.

‘’This will also help diversify earnings profile for CMS Info outside of cash- transactions. While the transition will be a tad more capital intensive, we see this as important in CMS’ medium-term interests,” added Jefferies.

Estimates raised, re-rating catalysts ahead

‘’We rate CMS Info Systems as Buy with a price target of ₹600 based on 19x Jun-26 PE. M&A led consolidation and diversification into newer/non-cash driven businesses can drive re-rating,” said the global brokerage.

The brokerage has raised the profit estimate by 3-7 per cent and sees 20 per cent CAGR over FY24-27. ‘’It is interesting to note that even as stock is up 36 per cent over past 12 months, valuations have ranged around 15x one-year forward earnings which in our view is attractive for a high quality stock. This reflected higher dependence on cash- transaction revenues, which does get lower growth multiple,” highlighted Jefferies in its report.

CMS Info Systems Share Price

On Tuesday, shares of CMS Info Systems settled 2.79 per cent higher at ₹436.35 apiece on the BSE. In the last one year, shares of CMS Info Systems has given 41.57 per cent returns to investors and 101 per cent returns in the last three years.

On December 31, 2021, shares of CMS Info Systems shares made a tepid debut on the stock exchanges as the public issue of the cash management company opened at ₹220 on NSE, nearly two per cent higher from its upper price band of ₹216 per equity share.

CMS Info Systems Ltd is one of the country’s largest cash management company based on number of ATM points and number of retail pick-up points, and offers its customers a wide range of tailored cash management and managed services solutions, including ATM network management, retail management and managed services. 

CMS manages the entire flow and management of money for the business points that it serves every day – from when the RBI initially deposits cash in the bank’s currency chests, to when cash is deposited back in banks after going through the various stages of the cash cycle.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, and not ThirtyTimes. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.